Where are the Gold Traders?

By: Bob Loukas | Mon, Feb 6, 2017
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Bull and Bear

This is the 3rd piece on gold that highlights how unloved gold remains today.  Considering the 2016 rally in gold and the turbulent times we now find ourselves in, to be honest I'm rather surprised there are not significantly more gold traders all over this market. Part 1 and Part 2 cover the initial stages of this rally from the December lows. Below is an excerpt from the Financial Tap Member weekly weekend report.

I am rather surprised to read across the blogosphere how a majority of Gold Traders appear to discount and undermine the current gold market. I can appreciate that the longer term cyclical outlook remains unresolved, but in the short-term at least, I believe the gold sector looks to be in great shape.

My view comes with the hindsight of the Cycle count. From what I can see, we recently completely a clear 1st Daily Cycle Low and have already moved higher to new Investor Cycle (Weekly Cycle) highs. Historically, with the second Daily Cycle just starting out, we are now in the most bullish portion of a 26 week Cycle. That means the performance over the next 3-4 week normally shows the best return for the entire Investor Cycle period.

In looking at the chart below, I see that new highs on Thursday confirm that we have a new Daily Cycle in motion. The DCL was relatively mild and short, but then again being a 1st DCL this is not unusual or particularly surprising. And if we consider the 1st DC rally was orderly and not excessively overbought, then there was no real need to see a punishing Cycle decline to counter that rally. Because the 1st DC that was extremely right translated, my most favored outlook is to expect a significant surge in gold over the coming 10 to 15 trading days.

Daily Gold Chart

I often receive emails from concerned members or posts on the Bull Bear Talk forum (http://www.bullbeartalk.com) asking if I'm sure the market completed a Cycle Low. If I see the possibility of a Cycle Low decline to come. Their concern is out of fear of losing, rather than seeing the opportunity in the setup. And generally that fear comes from a lack of proper trade sizing and risk management, because losing trades for some people ending up costing them far too much of their capital.

My answer is generally the same, in that we should always favor the possibility that best fits the evidence. If you're concerned about taking a trade, then take half the size so it's not a mental burden. But do not look for the outlier possibility to every scenario out of fear. If you're going to follow Cycle's analysis, then stick with the most plausible scenario and build your trade position around that narrative. Picking trade winners is difficult enough, but coming up with correlated asset arguments or unlikely Cycle outlooks means you're automatically going to be trading an idea that has a 33% win rate at best.

Always look at the evidence as it stands, meaning the recent price action and what has occurred, not what might occur. Look at the chart of precious metal miners below, for example. Sure, this could be a sinister move designed to draw in the bulls. But that goes to my point above; we cannot sit back and look at the worst case scenario, that's what defining a stop point is designed to protect us against.  The chart below, with the evidence seen in gold/silver price, tell me that we have a great setup ahead.

VanEck Vectors Junior Gold Miners ETF Daily Chart

What I like most about this setup is that sentiment has actually been going down. A similar phenomena is being recorded within the COT report, where speculative traders have yet to offload their short position, let alone begun the normal short to long rotation see during every Investor Cycle.

Unless gold is back into a bear market trend, such as circa 2011-2015, then the sentiment chart below indicates that gold could rally for another 2-3 months before reaching the overbought levels associated with bull market, IC Tops.

Gold Optix

We have now completed seven weeks of this Investor Cycle and in my opinion we have a perfectly formed bull market Investor Cycle. The 10-week moving average has turned higher now, and trailing technical indicators show support for a mover higher supported for another month or two.

We also have a weekly MACD bullish cross developed. Essentially with a 2nd Daily Cycle just starting out, we have all the right confirmations and pieces in place now for the next powerful move. I continue to stress that nobody can tell you if this will end up as a powerful Right Translated Cycle, as seen in the first half of 2016. But I can say that a powerful bullish setup has formed and Gold Traders want to be positioned in a way where we can capitalize on a 2016 like rally. At the same time, it's not a call to be all-in, we want to remain defensive enough (risk defined) to come out relatively unscathed if a bear market decline returns.

Gold Weekly Chart

 


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Bob Loukas

Author: Bob Loukas

Bob Loukas
The Financial Tap

Bob Loukas is the founder of "The Financial Tap", a membership site dedicated to helping traders and investors navigate the markets while increasing their expertise and understanding. Bob has over 20 years of experience in trading the markets, is a life-long student of economics, and has an abiding passion for the financial markets. Much of his investment philosophy is top-down in nature, beginning with a global and macro outlook which is used to create a framework that drives his intermediate investments.

Bob is a leading expert in Market Cycles. His love of Cycles grew after his introduction to the work of Walter Bressert, one of the pioneers in the field. Cycles were a natural fit with Bob's passion for top-down analysis. As Cycles are intertwined on multiple time frames, understanding the global outlook greatly helps him to identify the long dated Secular Cycles. From that point Bob is better able to identify the shorter Cycles and to build a cohesive investment strategy. Bob's Cycle Analyzer, a software based analytical and intelligence system, is used to predict the future movements of the major financial markets.

Originally from Sydney, Australia, he is now settled and has been working in New York City for the past 13 years. His background and education is in Computer Sciences and he holds a bachelor's degree from Monash University in Melbourne Australia. He has extensive experience in the Financial Software area and has served as a senior executive at various Fortune 50 management teams developing financial trading and reporting software.

Happily married with two children, family is a big part of his everyday life. Other passions including golf and long distance running. He plans to complete the 2012 New York City marathon.

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