Loading ...Gold Bounce : Real Deal or No Deal ?
As a comparison let’s take a look at the post crash bounce we saw in July 2013 which lead to a BMR and compare it to todays romp in the gold fields. Recall back in June 2013 gold had just experienced its POR so everybody knew we were in a bear market, however after 2 consecutive crashes the faithful could rationalize that this could be “THE BOTTOM”. So when the bounce came after the second crash sequence volume exploded with a 77 Million share day powering the GDX up 9%. That was the largest volume day so far in the 2 year old bear market. That equals $1.8 Billion in GDX stock. I remember that day well, and recall watching the market move on my I-Phone while drinking a beer in Paris, it was stunning. The powerful up volume actually exceeded the down volume on the day of the great Goldman Bear raid which started the whole three month dual crash sequence. So it seemed that maybe this was the real deal. Maybe the bottom was in. An astute market observer would have analyzed the next day however that there was no follow through and the GDX put in a Hanging Man candle. The 25 DMA was well under the 50 DMA so we had a immediate deep correction of that explosive move before commencing the BMR. Note also that the initial bounce stopped at the bottom of the open gap left from the last crash sequence.
Now onto today’s gold romp. On July 20th we crashed and gapped down on record volume. This was a selling climax no two ways about it. What has amazed me is the markets inability to rally after such climax. This is not normal. I attribute that to Phase III dynamics and is announcing we have broken the backs of the bulls. So my analysis of the psychology is that we can’t produce a BMR. A vertical short covering rally yes, however there is no organic buying demand after that selling climax. We must construct a base before a prolonged rally. The share count was 91 Million shares moving $1.3 billion in GDX stock for a 6.6% move. Impressive, however certainly not up to the one day launch of June 2013. We still have not reached the bottom of the gap left open by the crash day of July 20th so if history is a guide maybe that would be a logical place to stall…or end. 91 Million shares is a lot of course, however its significant to note it is eclipsed by the downside count on the selling climax day of 172 million shares. I will note, however that since the crash daily OBV has started to climb but is still under its 30 EMA. So overall I have to say I am not really all that impressed and don’t think the move can be extended much further.
So how much further? Time wise I refer to the 1907 analog. That entire Mid-Point bear wedge lasted 7 weeks, but the up portion lasted only 2 weeks. So that puts the pain only for 2 weeks if one is short. As far as price, the first important level to watch is if it can enter the open space of the crash gap. If it can reach there we will reevaluate.
Thanks a lot for sharing, it is interesting.
Great as usual, thanks
In the 1907 analogy to today’s markets, the point of reconition POR is pretty clear. I would say it is also crystal clear in the gold market.
I have been reading some history of the 1921-1933 period in a pretty entertaining book Liaquat Ahamer’s Lords of Finance, depicting the farcical nature of central banking, war debts, hyperinflation and stock bubbles and busts of that period. Fascinating. Apparently the Fed governors and chairmen for there were several, contradited each other on a weekly basis.
The 1929-1932 chart that Plunger posted the ‘URSA Major’ market of the Dow, to me the position of the POR is not so clear because there was the huge crash in October 1929 very early on, only a few weeks after the top on 3 Sept 1929 and the POR comes in 1930 but is a smaller crash than the 1929 event.
I am also fascinated by the shape of market tops and why some are spike tops an some seem just to roll over and die. Spike tops like gold 1980, silver 1980, Nasdaw 2000, China now and more rolling tops like Dow 2007 and maybe even Dow 2000. Then some that are either/or like Nikkei 1989. IS the spikiness of the top just a measure of the liquidity of the market – ie silver 1980 waa extrememly spiky because it is a small market?
So, 2 questions:
1. Does the shape of the topping process (as above) make any difference to the technical analysis of these markets?
2. The china market did not reach its 2008 high before its recent crash. Everyone is calling it a bubble but didn’t the bubble burst in 2008? Where is China’s Shanghai SSEC index in terms of Phases I, II and III?