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Message of the Markets: Gold Must Hold, and Silver Is in Trouble


The one hope for the gold bugs is that the broken downtrend line holds up as support. If it doesn't, we should see a real acceleration to the downside in the yellow metal.

Risk assets are still in the middle of the recent trading range. The recent days' action have been very frustrating for analysts like me. One day, we're seeing a bullish key reversal, the next day we're seeing a bearish key reversal. Times like these make predicting the short-term a fruitless exercise. Times like these call for one of the following strategies: sit it out in cash and watch from the sidelines; stick to whatever system you typically employ like a robot and do NOT deviate from it at all even if the short-term results are negative; or, look to the other asset classes for more favorable investment / trade setups. For me, the latter strategy is the best strategy. I look to the commodities, currency and bond markets for more obvious technical setups and leave the frustration of the stock market for others to endure.

Summary of Wednesday's Market Activity
  • The T2 Leading Index underperformed on a daily basis and is continuing to do so on a weekly basis. It is still maintaining its leadership position versus the key equity indices on a month-to-date and year-to-date basis. So, the Index is sending us an overall neutral message.
  • There was conspicuous weakness and relative underperformance from the Chinese ETF (FXI), the Copper ETN (JJC), Apple (AAPL) and the credit card processors (Visa (V) and Mastercard (MA)). These are all components of the T2 Leading Index and are key areas to watch for signs of over / underperformance. The relative weakness in those areas (along with the overall T2 Index) tells me that the short-term downside correction has some more to go before it's over.
  • The S&P and the NASDAQ each gave back more than 50% of Tuesday's gains – the third day in a row of such directional reversals (very aggravating for those of us trying to get a read on the short-term direction of things). Only the Dow Jones Industrials did not give back more than 50% of the previous day's trading range.
  • Bond yields came back in a bit Wednesday, but did not move convincingly in conjunction with the downside action in equities. I consider this a bit of a non-confirmation of the downside action.
  • In addition to the weakness in copper, we saw continued weakness in gold and silver and a bearish intraday reversal in crude oil. The bearish key reversal in crude only offset Tuesday's bullish key reversal – again, confusing and frustrating action. The question is whether there will be a confirmation or a reversal of the downside in stocks and crude on Thursday.

Charts of the Day

Gold Must Hold Here or Else:

Click to enlarge

  • Gold futures have been noticably weak recently – falling even on days when the US dollar is weak / euro is strong.
  • The chart above shows us that gold is likely in the midst of a wave v move lower. This move, if it matches wave i in magnitude, should take gold all the way down to around 1485.
  • The one hope for the gold bugs out there is that the broken downtrend line shown on the chart holds up as support. If it doesn't, we should see a real acceleration to the downside in the yellow metal.

Silver Also Appears To Be in Trouble in the Short-Term:

Click to enlarge

  • Silver futures are likewise in trouble in the short-term. The downside target here is likely going to be at the 100% Fibonacci price projection line at $26.80.
  • A break and close above $33.585 will make me have to re-evaluate things. Unless and until that happens, the move in silver (and gold) lower should continue.

Remember the message at the beginning of the article – when things get that hard to properly game, either sit it out, ignore the short-term results and stick to your system, or look to other markets for better / easier setups. I'd say the first and third options are the best options for most pros and amateurs alike. That's all for now, baseball fans (in honor of the World Series )!

Twitter: @tttechnalytics

No positions in stocks mentioned.

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