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February 24, 2015

Sometimes the Best Position Is No Position

Gold's cyclical setup is looking mighty bearish these days. An extended and left-translated daily cycle is due for a low while the weekly cycle sits only on Week 16. With the normal weekly timing band running 18-24 weeks, another LT daily cycle should unfold before the next intermediate-term low.

Nevertheless, much lower gold prices are not a done deal. A couple of technical points... one on the daily chart and one on the weekly... could keep the bullish case for gold alive.

Left-translated cycles are supposed to fail, which is to say, drop below the previous cycle low. When an LT cycle does not fail, price is usually locked within some sort of consolidation pattern, such as a triangle. So perhaps one more daily cycle will be needed to find a weekly cycle low, but that next cycle could chop sideways to complete a coiling pattern.

On the weekly chart, we can see that gold has not yet moved below the lower TrendBand.

Two potential paths for the termination of the current weekly cycle could keep price above the weekly LB. The aforementioned coil is one. But perhaps gold will just form an early weekly cycle low at the end of the current daily cycle.

We cannot predict which path will transpire and, in fact, we have no assurance of any bullish resolution. So in the absence of solid trading signals, our best position is no position. If gold plays out the coil, we can look to initiate a long position when the time comes for a spring out of the coil. By that time, gold will be solidly within the timing band for a weekly cycle low, and the most probable path out of the coil will be higher. On the other hand, if gold weakens further and breaks below the weekly LB, the prudent path will be to remain flat or look for a rally to short.

Gold miners offer a subtle clue that gold will resolve bullishly into the next weekly cycle.

I have seen plenty of bull flags fail to result in higher prices, so let's make no assumptions here. But the fact that sub-$1200 gold has not sent mining shares reeling is an important clue, in my opinion.

 

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