Today’s blog was inspired by an engaging email correspondence I had with a long time BNN watcher and blog reader, Marc in Gatineau. Marc inspired me to take a look at the big picture of gold and see if there is a potential base/bottom formation forming for this commodity. As anyone who has followed my blogs lately knows, I rather like the commodity space right now. Having said that, I am viewing the trade as a relatively short termed one – with an eye on certain targets that might be reached in the coming month or two.
Having said that I am viewing the commodity trade as that of a shorter termed one – I am inspired to note that gold may just be putting in a longer termed “Head & Shoulders” bottom. Now, to make things perfectly clear – one does not actually have a valid base formation until the neckline of such base formation is broken to the upside. As I noted on my BNN show last night, gold has a pretty strong neckline (resistance point) at somewhere near 1360 or thereabouts. One needs to see a breakout that lasts numerous days at the very least – along with a significant spike in volume (thus, causing a moneyflow indicator such as Accumulation/Distribution line rise dramatically). That’s not happening yet, suggesting we are still in a phase 1 base for gold. See the chart below. BTW, for those who don’t follow the market phase concept – may I humbly recommend that you read my book Sideways.
The long termed chart below shows us that the big picture for gold may indeed indicate the formation of a H&S bottom. But we haven’t seen the neckline break.
The Great Canadian Mortgage Giveaway
3 years ago, the Canadian government promised set amounts of spending with a firm repayment promise within 5 years. One year later, that spending plan had already tripled. A year after that, it grew by another magnitude, with a 20 year payback period. Finance Minister Bill Morneau’s 2019 election-year budget included yet another $22.8 billion in spending over six years. And now …not 5 years, not 20 years, but…wait for it..NO timeline for eliminating the deficit! The budget also afforded households a 10% interest free no-timeline “loan” for new first time home ownership. How does this tie into my blogs?
Well, as noted on Mondays eerily timely blog – in the comments I quoted by respected trader and analyst Larry McDonald: “The BoC just can’t be hawkish. Housing is just such a massive part of the economy, multiples of the US in 07. They know they let house price appreciation run too hot from 2013-18 and they now have to attempt a soft landing.”
Larry sees Canada’s real estate market as a setup for a circa-2007 USA real estate market top. The only path out of this potential is for our government to attempt a soft landing. He knows – that they know – this is true, but, they don’t care. I wonder who out there actually believes that the current budget is prudent, and that debt can rise for infinity. More importantly who believes that increasing stimulus to an already overheated real estate market is not the exact opposite of what Larry terms as an “attempt of a soft landing”? Good grief.
Back to gold Anyhow—happy trading, and keep an eye on gold for either a smash and burn at $1650, or a breakthrough. Either of these occurrences are quite tradable.
9 Comments
Thanks Keith & much appreciated comments on your behalf.
Cheers,
Marc in Gatineau
So keith if you were the finance minister what would your budget be? Youve had your opportunity to offer constructive criticism. Now Keith present your budget as if you were the elected minister, whether with or against party lines. Thanks Lana
I am not budget minister. I am a technical analyst. But one thing is for sure–I would probably focus more on true, level playing field policies, less special interest group benefits, and less target voters being appeased, and…most important… look to bring Canada’s deficit back to 0 –cutting out useless expenditures like CBC, investing in infrastructure or businesses with a viable plan to payback and increase GDP contributions (not giveaways), and stuff like that.
I’m a self-admitting libertarian–which makes me the least popular guy in the room in some circles. Knowing that free market economy is unlikely in a socialist-biased culture–I’d settle for a decent dose of fiscal prudence if I cant expect truly free markets.
Its like observing a crime. I’m not a policeman, and may not know how to stop the crime or be equipped to do so. I do know its wrong, though.
Good morning Keith
A question(s) please regarding the use of Accum/Distribution vs On-balance Volume. When I take a look at OBV for the GLD it is much flatter than the A/D chart. My questions therefore are: 1. Which on is better and if they are divergent, do you see that as a warning sign. i have been trying to use these two indicators together, so I’m just trying to get my head around what I am seeing at times.
Thanks in advance,
Chris
Comparing AD vs OBV is a big subject involving some math but lets just simplify things with two sentences (if you want more info–go to chartschool in stockcharts.com and look each indicator up)
Here are the main comparatives, simplified:
OBV is a simple running total of volume–it adds the entire volume as higher or lower depending if the market closed ahead of the prior close, or lower. Very simple, but a bit more choppy.
A/D is a more sophisticated cumulative volume tool. It uses a multiplier based on the relationship of the clsoe to the high or low that day.
I prefer A/D for its more “accurate” relationship to moneyflow (you can argue this if you wish…its just my take on it).
I don’t study divergences between the two–I have focused on just A/D for the past number of years. One of the things that I have found is KISS –keep it simple–too many indicators spoil the broth.
Hope that helps.
Thank you for that Keith! I appreciate your time and expertise.
Chris
Gold is not what it is used to be, so the long term chart is probably not applicable any more.
Why? It sometimes in sink with the market and other times out of sync. It is no more the classic inverse pattern of the market in general. It also cannot be viewed on its own as insurance for a market downturn.
Therefore you have to watch what it does on its own.
Since there is no yield, it is purely a speculative timing strategy.
It looks like it is in the middle of a channel, so I would wait until it nears 1200 before a buy.
Don’t believe when an adviser says,”you should always have some for diversify”.
Really? Holding something at the wrong time is wrong! It is junk. Why hold a loser?
Diversify in stuff that is good or starting to look good.
Robert you are preaching to the converted!!!!
You are referring to the first chapter of the CSC that Advisors must read (and write an exam around) dealing with “Modern Portfolio Theory”–which has many parts to it — but one concept of the theory is to diversify in multiple sectors and asset classes that might over the long run reduce risk.
As you note–the problem with that Advisor-pushed theory is that you hold on to garbage when there is clearly no reason to do so.
Gold, IMO, has a $1360-ish target. That’s a bit more upside, and i think it will get there given low US rates and soft USD etc–but there is no reason to go heavily into it until and unless it breaks out. While you may think that longer termed charts don’t count–the H&P possible formation is actually only in the making over the past few years–so if it does break out (and it may not)– it would be a relatively current base pattern breakout…
I remain neutral and unbiased..Zen mind, so to speak, on this trade.
you are not alone!