For those that follow me regularly, you will know that I have been tracking a set-up for the SPDR Gold Trust ETF (NYSEARCA: GLD), which I analyze as a proxy for the gold market. I also believe that gold can outperform the general equity market once we confirm a long-term break out has begun.
As we came into 2018, my expectation was that if GLD was able to hold over the 119 region into the summer, we could likely challenge the all-time highs in gold as early as the end of 2018. Unfortunately, with the break below 119, it is likely pushing off that potential until next year. Moreover, with the break below 117.40 this past week in the pre-market, we will need to see another setup develop before we will be ready for a major break out in gold. And, this will likely take weeks to months to re-create.
Now, before you take what I just said as me being bearish, I want to dispel you of that notion. Rather, when we review the larger degree perspectives we track in the metals market, the bigger picture is still looking quite bullish.
Many of you will look at the downtrend we are now within, and scratch your heads as to how I can possibly be bullish. Well, I don’t make determinations about the market based upon what happened yesterday. Rather, I view the pullback as approaching completion based upon its structure, as well as the supporting technical indicators. This is no different than when I turned “strongly bullish” at the end of 2015. Yes, we were still in a multi-year downtrend, but that downtrend structure was reaching its completion, similar to what I am seeing now on the larger degree. Now, the indications suggest that, while the market may yet see more weakness over the coming weeks, the bottom is likely a lot closer than most realize.
In fact, I am again seeing many articles coming out suggesting that you must stay away from metals. I am even seeing many articles coming out with perspectives presenting their certainty that gold is heading below $1,000. And, yes, many of them were written by those who were looking for a break down below $1,000 gold back in 2015/2016, and they missed one of the strongest rallies seen in the metals complex. I suspect they will be left in the same position as we look forward towards 2019. And, if you are asking yourself about the bullish articles, generally I don’t even bother reading or looking at articles from perma-bulls, as we already know what they are going to say.
I know that this consolidation has taken way longer than any of us expected. Unfortunately, timing is not something that one can analyze to a high degree of probability when it comes to markets. So, while this consolidation has certainly lasted much longer than I had expected, the basic overall larger degree structure which presented as bullish a year ago still remains quite intact, even though we have seen the passage of a significant amount of time. But, due to my fear of an extended pullback, I have strongly, and seemingly appropriately, urged all of my subscribers to stay away from leveraged instruments (3X ETF’s and options) until the market confirms its break out signal.
But, I do want to add one note before I sign off for the weekend. I track silver on a 144-minute chart, on which I use a MACD indicator. Each time that MACD indicator has presented with positive divergences, it has successfully signaled an imminent rally in silver without fail for years. While nothing is infallible, and we could certainly see a failure, the probabilities suggest we are closer to a bottoming than most realize. These types of divergences, when stretched, often build strength in the market which is then seen taking it strongly in the opposite direction. And, right now, it is screaming to me.