Big Picture Gold

 

 

 

Trader Scott’s Market Blog

January 8, 2017

 

It’s good over the weekend, while reviewing and planning, to look at the big picture in markets. For gold, my belief remains it’s in a big area of accumulation/cyclical upleg which began in December 2015. The accumulation really kicked in around the April-July of 2013 volatility zone. This last three years is a big area of preparation for an eventual push higher back to the September 2011 highs. But there will be plenty of volatility this quarter. Despite all of the bullish claims about why gold is going to the moon, it’s gone nowhere since July 2013, and actually it’s been seven years for a buy and hold investor. Yet looking at the chart you can see there has been alot of volatility/opportunities. This large accumulation area is a way better reason to be bullish about gold’s prospects than all of the bullish stories combined. These claims have been used by frauds and incompetents (collusion?) as a way to get people to buy gold at the very worst times. Taking a look at the miners is even more interesting. The chart below shows the price of the Barron’s Gold Mining Index (courtesy of goldchartsrus) since the 1971 end of the US$ convertibility into gold “scheme”. Any index of bigger gold stocks relative to gold (gold price around $40 in 1971) has been very unimpressive over the last 45 years. If these miners now are truly focused on keeping control of their cost structures, then this relationship can improve. We can’t know if they will at this point. But we can know the miners are at a low level relative to gold currently. It’s one of the main reasons why I was so bullish on the miners specifically in December 2015. We can only deal with the facts in front of us, and the miners are relatively cheap. Even a modest gold bull market will help the miners alot, assuming the miners can keep their costs under control. And also assuming investors don’t flood the mining industry with capital on the next big upleg, allowing (encouraging) the management to completely misallocate (destroy) shareholder value once again. 

The XAU index since the 80’s shows we are still relatively low in the big range, and why my belief for a great investment opportunity in gold stocks was/is at hand in December 2015. We were sitting right at the November 2001 lows, and then we actually traded below those lows in January 2016. It was a potentially very bullish situation (Wyckoff spring setup) and we exploded back thru. In the nearer term look at the XAU, the 115 area is the huge resistance area. And below the 75 area from 11/14 is the first good support area for investment – the bigger selloffs/volatility are going to continue to be the entry points this quarter. This thing from 2011 is winding down. I’ve been bullish on the $ for years, but the rally in the $ from the March 2008 lows is potentially closing in on a top this year. A small selloff followed by another big push higher should begin the topping process, which then would take some pressure off of PMs. The performance of gold vs. all other currencies should continue to be watched. As gold was falling after the US election, a lot of calls by pretty famous people came out about much lower gold prices. My view posted several times (like September or November or November) about the timing and significance of a late 2016 selloff, generally has been about a secondary test (retest) of the December 2015 lows. The technical action and sentiment (PMs are such an emotional market), as per usual, will continue to help hone in on entry points. And all of those big picture fundamentals which we’ve heard about for so long will start to have more effect on prices later this year. My focus will be on the problems at the major banks, the breakup of Europe, and later in 2017, bond market problems. And lastly, a look at GDX longer term to see the big bottoming process which continues. Also, realizing the ignored, but bullish aspect regarding the sell off from the summer highs, it is just setting up something even bigger. Though it’s tough going thru it with a long position already established (once again showing one of the purposes of taking some profits at times). And here is a shorter term look of my GDX chart which has been posted since the past summer, showing the types of buy zones marked.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

About

img_0074bwcrsmTrader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day. Scott returned to markets over fifteen years ago where he continues as an independent trader.



'Trader Scott’s Market Blog – Big Picture Gold – January 8, 2017' have 11 comments

  1. January 10, 2017 @ 11:30 am PRice

    Hi Scott! is there a way for your charting service to include all prices? For example, on December 15, 2016, I made multiple GDX buys below the indicated daily range that may affect the support level.

    Reply

    • January 10, 2017 @ 12:32 pm traderscott

      PRice, I’m not sure what you mean. But in general, I’ve said numerous times that my personal approach to markets means always buying below the support levels. It’s because I have alot of faith in support and resistance, and prices, at least short term, should have a tradeable, or more, rally. And, as some of the folks who email me know, I was buying on the “break below support” near the close on the 14th, and over the next few days. You did a very good job buying there PRice. To me, what you were essentially doing there was buying below support – a great strategy, as you have really wrung alot of risk out at that point, and you can see what happens when it trades back thru. Also, GDX formed another smaller range in there with the December 15th support. So the little new low on the 20th was another smaller Wyckoff spring in there encompassed within the bigger Wyckoff spring. If that didn’t answer your question, you can ask again, or email me.

      Reply

  2. January 10, 2017 @ 12:02 pm traderscott

    When I said a close for gold above $1191 would give me more confidence about gold, my belief wasn’t about it going straight up from there. It meant my confidence level in gold’s next retest would be at a higher level than December’s low. But currently, I’m just short term trading leveraged miner ETFs, as the miners back up to fill gaps, for the entry points, and then rally, taking profits into resistance. I purposely use the leveraged ETFs for short term trading, because it forces me to keep it very short term, but not for position trading. I did a “lesson” about how the leveraged ETFs (derivatives basically) underperform the underlying product – in this case GDX (link) vs. NUGT (link). (I did audio with it, so the lesson may get posted, we’ll see – just experimenting with some things.) And even in the relatively short term, look how they underperform. Just in the last several weeks, they’re already underperforming. But their volatility is great for short term stuff. But on a bigger picture, my view is unchanged. We did get the good rally out of December which I wanted to see, so that is a bit of a “confirmation”/confidence booster. And the much bigger backups in the individual miners are the position buying entry points, with some selling at the big resistance areas.
    And the post from December 7th (link) mentioning my interest in the biotechs, which are very bullish long term. But, the general ETF BBH (link) has rallied quite a bit from that December 7th low and is closing in on resistance areas – not at all a good time to buy (position trading wise, short term there are always opportunities). And anecdotally to gauge sentiment, everyday I look at some of the popular stock trading sites like Stocktwits, and they are going wild over some of these biotechs currently, like ETRM, SRPT, and ILMN.

    Reply

    • January 10, 2017 @ 1:34 pm David V

      I did a quick short trade on GDXJ at resistance today, looks like PMs are starting to roll over after a spike to $1190?
      When is your website going to be up and running?

      Reply

      • January 10, 2017 @ 6:08 pm traderscott

        Good trade David. Textbook very short term trading in GDX, GDXJ, and the leveraged ETFs. Filling the lower gap late yesterday, slamming into resistance today, and right back to yesterday’s lows to cover. It’s interesting about the $1191 gold, today’s high was just shy of that. You’re doing a good job trading the support and resistance areas, just keep racking those up. The bigger resistance is above $1198.
        We’re working on the new website – the framework is up – hopefully before the end of the month.

        Reply

    • January 11, 2017 @ 5:00 am Larry Ducharme

      Hi Scott,
      I checked out the charts of those three biotech stocks that you mentioned. What is the deal with those wild swings in prices? Talk about a wild ride!! They seem like something that John Glenn would have enjoyed!

      Reply

      • January 11, 2017 @ 9:40 am traderscott

        They’re being followed by the momentum crowd. I’m watching them for a potential opportunity to take the other side. I have no position in ETRM today, but that’s an example.

        Reply


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