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.