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Precious Metals & General Market Review

August 2014 – Issue #326.a 8-3-14

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“A Swan of a Different Color”

There’s nothing funny about Ebola. Nothing funny at all. If one were wondering what type of swan could end the party, it doesn’t get much worse than this. Yahoo has published a map of CDC Quarantine stations. Ebola victims are coming home. A swan of a different color enters the pond.

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The markets have been pulling back as reflected in some well performing mutual funds like this one. This fund has been riding its 150 day exponential moving average. Let’s keep an eye on it. Support comes in at $43.67 this weekend.

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Apple has been unable, so far, to hold new highs. Apple is overbought and has been riding its 50 week exponential moving average as support. Let’s see if that can continue should a pullback get underway.

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The Banking sector appears to have put in a right shoulder of a head and shoulder top. This merits watching closely as well. Back to the cup and handle breakout is a long way down from here. That breakout in December 2012 never took the September 2012 handle pivot high out with greater volume. Often times, that can be a problem later on and those situations do like to back test. There are disturbing signs this weekend that the markets are showing vulnerability for a significant correction. This chart is one. In this weekend’s newsletter I will be reviewing a variety of moving average supports and suggesting stops to consider. Nobody is mentioning the danger of an Ebola virus outbreak for the USA in the mainstream financial media that I can see. That’s a bit disturbing too. It’s a time of heightened awareness. Be careful.

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Hopefully, some of the biotech companies are working on Ebola virus vaccines. Apparently, it’s not the science getting in the way, it’s the ability to make a profit. If we can incent companies to rooftop America with solar panels you would think that some type of incentive could incent our pharmaceutical companies to get going on this. Think tax breaks. Big tax breaks. Back to the chart. This biotech ETF is consolidating a massive triangle. Support comes in along its 65 week exponential moving average.

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The market’s in a full blown pullback phase according to this model. The $CPC has already spiked pretty high, and my guess is that the market should recover off the SPX 150 day exponential moving average, perhaps next week. KEEP A CLOSE WATCH ON THE SPX 150 DAY EMA.

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The percent of SPX 100 stocks above their 50 day moving average has fallen significantly. That was quite a one week drop. It may a bit further to go. If a bounce does come in off or above the moving average supports illustrated in this weekend’s charts, I would be mindful of the volumes behind the bounce. If the volumes back up are lighter than the volumes the stocks came down on, that would be bearish information.

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The $SUPHLP indicator remains bullish…barely. This indicator matched up with the SPX 150 day EMA has served us well as a model to keep us in the bull market. My guess is that a violation of the SPX down thru the 150 day EMA would likely result in a bearish $SUPHLP indicator crossover – a bear signal.

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The S&P 500 Index remains within a rising bull channel with support at 1875. Relative strength, stochastic and MACD indicators are all oversold. I have no personal interest in suffering a decline lower than channel support. You may feel differently about that.

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It’s my own, personal opinion that 1875 is an early crossover line between a bull and bear market. For some, that might be too tight a boundary. Here’s the deal. If one remains in the market and it does end up turning back into a bear as the Fed exits from buying treasuries and mortgage backed securities, one will be kicking oneself for not exiting a channel break. So, that’s for you to ponder.

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Bear Markets are easier to identify in hindsight. This Thirdeyeopentrades model is a late signal, more a confirmation of suspicion and useful in keeping one in multi-year moves, long or short, until moving averages cross. Once the 10 month exponential crosses down thru the 12 month EMA, along with a corresponding crossing down of the stochastic indicator down thru 50, you can be pretty much certain at that point it’s a bear market. But you have to suffer a BIG DROP before that confirmation. I would prefer, five years into a bull market, using a tight stop and 1875 is my number. Your number is your business. One can always re-enter (like 1998, 2010, 2011) should the stochastic stop at 50 and turn back upward. Your decision entirely, I’m just sharing my tools and observations.

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Bear markets frequently start off by just being a normal pullback within an uptrend. The Fed is EXITING slowly and the times they tried this before (since 2009), albeit swiftly those times, the markets experienced significant sell-offs. The bullish percent indicator has fallen off a cliff and, although it may reverse back upward, is a long, long way from the low altitude zone it reached back in 2011. Some, looking at this chart, might be more apt to stop the S&P 500 at 1890. Others might stop the 65 week EMA at 1800. Everyone has different objectives, various timeframes and a variety of ages. You need to consult with your individual planner for guidance on whether to remain in the markets or perhaps adjust to a more conservative stance if breaking these moving averages and support lines would be worrisome and likely to cause you to loose sleep at night during a pullback, correction or new bear market.

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So, some numbers to consider for stops this weekend: 1890, 1875, 1800. How deep a pullback can you deal with? Now is a good time to figure that out. You see, once this market breaks, I think it will visit the 1500’s. I’m not going to ride that puppy down if I can help it. So, come on you High-Heeled Boys of Wall Street, show us your stuff and hold these markets up as the Fed exits slowly from their $4.4 TRILLION balance sheet. Actually, the Fed hasn’t even started to exit from the stuff on their balance sheet. They’re just adding less gasoline to the fire. But I don’t think folks are ready to pile on thru the theatre exit quite yet.

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This model didn’t work well as the Fed papered the markets right up thru resistance. So, with all the Central Manipulation, I’m wondering if this is what’s coming? Too hard to say, it’s all conjecture anyway. The bottom line is that Relative Strength is overbought beyond belief and the stochastic indicator is too. The MACD histogram has been putting in lower highs and monthly market trading volume has been waning. I think this is a real dangerous market up here. THAT’S why my stop is so tight. My personal and professional experience is that ordinary folks with families are saving way less than they ought to and many small business owners that I meet have been thru life events where they’ve spent their retirement savings just to get thru the 2009 crash and post-years. 75% of working Americans have less than six months of emergency funds saved in the event of a catastrophe like injury, sudden illness or job loss. That’s right, only one in four working Americans has a six month emergency fund for after-tax living expenses. The other three don’t. Big recovery.

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The next Full Moon is slated to be an “ultra super premium moon” as it will be 1362 kilometers closer to earth than July’s. This one’s supposed to be so close you’ll be able to kiss its cheek, as it passes only 356,896 kilometers from your back yard on Sunday, August 10th if you live in New England, USA. Check your Farmer’s Almanac for the exact date and time. http://www.almanac.com/moon/full/states

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A few people have made fun of this gold chart and accused me of painting the tape with my bias. Not from this audience, mind you. Whatever floats their boat. I’m told that important cycle turn dates for gold and silver come during the week of the Full Moon this month. There remain technicians insistent on gold falling to under $1200 within the next few weeks. We’re all entitled to our guesses. Gold has filled the YellenGap (visible in GLD and IAU). An inverse right shoulder is under construction. So far, the bull channel remains intact. The ADX +DI/-DI indicator is back on a short term sell signal. I don’t see gold needing to press much lower than last week. It may, but has fulfilled its YellenGap back filling. It’s all noise under $1375, anyway.

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I’ve lowered the initial silver target to $22.75. It doesn’t appear to be done with its pullback yet. A .618 retracement would fulfill a YellenGap fill. There’s good support along $20, but it may need to brush into the $19’s briefly. Volumes are lighter on the pullback so I see that as bullish. You can blame me if it pulls back under $20 because I said it wouldn’t be touching the teens ever again when it blasted off during June. If it does fall into the teens, I don’t think it will stay there very long. So, maybe silver will wallow around depressed for another week into the Full Moon.

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GLD has a nice setup, but sometimes they fail. All the elements are in place to take it back upward.

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When I labeled the chart, it was looking like a Morning Star reversal setup, but that was a lousy close for GLD on Friday on tepid up-volume. Technically, the island bottom remains in place as there’s an island bottom gap between $122.75-123.23.

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SLV hasn’t back tested the YellenGap, and I think it needs to. Should get that next week.

“We’re gonna pound you silly gold and silver bulls right outa that market”-Yellen, Aug ‘14

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Large specs are reducing long exposure and commercials are reducing their shorts in paper gold trading.

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Ditto in silver. These two COT charts imply tough days and weeks ahead for both gold and silver. The commercial shorts are attempting to hold gold back under $1300 and silver under $21.

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The dollar is right at resistance but it acts like it wants to go higher. Gold cannot punch thru its 65 week exponential moving average this year and that’s been discouraging.

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The Euro is oversold stochastically on the weekly chart.

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The Euro and gold pretty much dance the inverse of the dollar. It’s nice to see gold acting stronger than the Euro this summer. The dollar might pull back here which would benefit the Euro and gold. We’ll see.

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The Coppock curve on the quarterly Dow chart is turning downward. Price has not broken down thru the rising wedge yet. This is a chart to keep an eye on.

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The Dow has nearly reached support. These are the moving averages I’m watching to see if they all act as support.

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The Dow is rolling off resistance. What does it see ahead?

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Here’s a different quarterly chart interpretation. A massive rising wedge.

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Usually, like close to always, as soon as an A-B-C Up finishes its price move, a correction ensues. The Dow has arguably finished it’s A-B-C Up. Now what?

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The Dow to gold ratio continues to roll over in slow motion.

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Transports are holding above 100 day exponential moving average support so far and are oversold.

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Home builders have broken support and it could get messy.

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GE led the market down after signaling via the negative divergence with the Dow last month. GE has overshot support but it left behind a dragonfly doji on Friday which can be a reversal signal if confirmed on Monday. The Dow is nearly back to support.

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The divergence model worked. It just needed another week to trigger.

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I disagree with the Adens about gold being in a C-Rise. I think it’s still an A-Rise taking its sweet time, sort of like the one from 2006-2007 after that Double-D decline bottom. The MACD histogram in this chart is way too weak for this to be considered the beginning of a C-Rise, again in my opinion. The ABCD pattern in gold is their model, they likely know its behavior better than I.

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It’s frustrating watching gold fail to break up over resistance for months and months on end. Real frustrating. This chart suggests gold has a real hard road ahead unless it can bust up thru the 65 week exponential moving average and rise upward above it. Unfortunately, commercial traders are very, very short here. That’s not an optimal place for a launch upward from. It’s outright disturbing. The clues to any potential bullish reversal lies in shorter term time frame charts. This one’s too depressing.

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On the other hand, it’s a new month. Gold remains contained in an enormous multi-year symmetrical triangle consolidation having retraced nearly 50% of its secular bull market move from 2001-2011. Three years of price decline has been a brutal experience. Then again, it was necessary in order to construct a base for the next move up toward $2,800…which very few folks believe in anymore. Only die-hard, veteran bulls are left. The MACD looks to possibly be within two months of a bull crossover signal. Rising support comes in around $1225 this month. This chart doesn’t look bad at all when we take it right back to the beginning of gold’s bull market. It’s the 2008-2014 section that looks disgusting. But it’s already August. Tick-tock, tick-tock. September’s right around the corner.

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This is Adam Hamilton’s new seasonal gold chart, indexed annually from 2001-2014. Gold ought to start moving higher again soon. But those dang COT charts sure don’t support that thesis. But this chart suggests one goes long at the July low and then hold on into the following February. It’s a model, no model’s perfect. It probably works better inside a cyclical bull market. The July low was in June this year. We need confirmation that a new cyclical bull market is indeed underway. Breaking up thru the 65 week EMA is the confirmation I’m looking for.

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I don’t think USERX is going to repeat last year’s August thru December selloff. I do think USERX can continue to consolidate some more before busting up thru resistance. The fly in the ointment are those dang COT charts for gold and silver. They are troubling.

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Well, we’ll see if a breakout is coming. But don’t hold your breath waiting! Tick-tock.

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Let’s wrap it up this weekend with a Volatility Index chart. That’s a big spike of fear. I’m thinking the markets will resume their upward trend soon. But we can’t get complacent. With that, have a great week!

Thirdeyeopentrades wishes you Health, Wealth, Wisdom and Happiness!

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purposes. It should not be considered a solicitation of an offer or sale of any security. The reader assumes all risk when trading in securities and Thirdeyeopentrades advises consulting a licensed professional financial advisor before

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