1. Market Update
Gold is getting weaker. With today's reversal the weekly chart is likely going to lose its embedded slow stochastic. Finally! This trend-reinforcing special set up has been in place since early February. Without the embedded stochastic Gold would become very overbought on the weekly chart. But this does not mean that prices have to immediately roll over. More likely will be a continuation of the volatile consolidation between $1,200 and $1,280 with a final pullback towards the 200MA. The outlook for gold remains cautious for the next couple of weeks and months. But in the bigger picture it is very likely on its way towards $1,500 and should start moving again in early summer. Don't short it but stay at the sidelines and wait for the dips.
The stock markets instead are right in front of their best month of the year. But the small speculators do not trust the recent rally and continue to hold an unusual high short position. With that type of sentiment stocks should do well during April.
Bitcoin finally struggles to break through the downtrend-line. A pullback towards its 200MA might be on the way already and could bring another chance to buy the digital currency on lower levels.
With the new portfolio & watchlist I want to help you in understanding that the outcome of the next trade is always random. But the occurrences of our edge over a series of trades and investments is what makes us consistent and profitable.
2. Bitcoin slightly shifting to more consolidation/correction
Unfortunately Bitcoin does not look too convincing here anymore. Since the top in early November Bitcoin has failed five times to push through the falling downtrend-line. Instead the green uptrend-line has been basically broken but prices are still oscillating around the 50MA ($415).
The Stochastic comes with a new sell signal while the MACD is neutral. The logical target for a pullback would be the 200MA ($364) which is about 12.2% away.
I don't like the current setup & behavior. Therefore I recommend to move our stop loss towards $397. By this we lock in a small gain of 6.72% and will be able to buy Bitcoins again in case we get a pullback back towards the 200MA.
Of course Bitcoin could still break out to the upside but the probability for such an immediate move is diminishing rather quickly. Over all this will not be the end of Bitcoin but another round of correction/consolidation. The uptrend is intact and markets typically shake out everybody before a large move can start...
Action to take: Hold your Bitcoins and let your winnings run. Don't buy here.
Stopp Loss: Increase your stopp to $397
Profit Target: $800
Timeframe 6 -18 months
Initial Risk($80) / Reward($430) = 1 : 5.4 (very good ratio!!)
Position Sizing: Don't risk more than 1% of your equity.
3. The Midas Touch Gold Model neutral since March 14th
Compared to last week we have only one new bullish signal:
SPDR Gold Trust Holdings
Two signals shifted to neutral:
Gold in €, $, £, ¥
GDX Goldminers Sentiment
And three new bearish signals are coming from:
Gold in USD - Daily Chart
Ratio Gold/Commodities (GNX)
GDX Goldmine - Daily Chart
My model has been neutral for 16 days now and has done a good job to keep us out of the market. There is no clear trend established and even though Gold is overbought on the weekly chart there are not enough convincing signals to justify shorting the metal here.
Instead the model's conclusion remains to stay at the sidelines.
4. Gold needs more consolidation
Since 11th of February Gold has been consolidating between $1,190 and $1,285 without being able to establish a clear and sustainable trend. With this volatile back and forth whipsaw movement the daily chart has already reached oversold levels as well as the lower Bollinger Band ($1,210). Also the 50MA ($1,207) is very close now and should bring initial support. Overall Gold has to meet the rising 200MA ($1,138) again before a new rally can start. As you know until June/July the seasonal window is not supportive and Gold typically is moving sideways to lower during spring.
Many analysts have been writing about the huge commercial net short position (CoT-report). It is true that the smart money's short position has reached unhealthy levels. Last year in late January the professionals held a similar net short position. We all know that back then Gold immediately finished its uptrend and turned $165 lower without any rally in between. But this year there is one big difference: the massive ETF buying. The most widely used vehicle - the SPDR Gold trust (GLD) - has added more than 190 tones to its vaults since mid of last December. This type of ETF demand was a huge driving force during the last Gold bull between 2008 and 2011. Now it is very obvious that the ETF buyers have returned to the gold market. Therefore we can not interpret the CoT-Data in the same way we used to during the recent bear market. If you read my report since 2008/2009 you might remember that we had net short positions far above 300.000 contracts and Gold still was able to rise. In my humble opinion the current CoT-report is a warning signal and point towards more consolidation & correction but a crash is very unlikely in the gold market.
Action to take: Nothing. Stay at the sidelines but plan to buy with both hands once Gold is pulling back towards its 200MA ($1,138). Practice patience!
Investors should buy with both hands if Gold moves below $1,150 again until you have at least 10% of your net-worth in physical Gold and Silver.
If you can not sit tight and have an uncontrollable urge to take action you can buy physical silver below $15.00 already, It's cheap, hated and seems to have started a new uptrend. It's not as strechted as Gold and the Gold/Silver-Ratio has recently peaked at 84. Once the precious metals sector gains more momentum Silver will outperform everything.
5. Grains running into a falling wedge
We did not get filled with our buy limit below $30.50 for the iPath Grains ETF (JJG). Over all this ETF is running into a falling wedge and looks very promising. But short-term we might see lower prices first. Today's weak down day might end the stochastic's embedded status and could initiate a pullback. A lower buy limit therefore makes sense.
Action to take: Buy the iPath Grains ETF (JJG) below $30.00
Stop Loss: $27.50
Profit Target: at least $39.00 maybe even $48.00
Timeframe 3 -12 months
Risk($2.50) / Reward($9) = 1 : 3.6 (now a very good ratio)
Position Sizing: Don't risk more than 1% of your equity.
6. Portfolio & Watchlist
7. Long-term personal beliefs (my bias)
Officially Gold is still in a bear market but the big picture has massively improved and the lows are very likely in. If Gold can take out $1,307 we finally have a new series of higher highs. If this bear is over a new bull-market should push Gold towards $1,500 within 1-3 years.
My long-term price target for the DowJones/Gold-Ratio remains around 1:1. and 10:1 for the Gold/Silver-Ratio. A possible long-term price target for Gold remains around US$5,000 to US$8,900 per ounce within the next 5-8 years (depending on how much money will be printed..). Fundamentally, as soon as the current bear market is over, Gold should start the final 3rd phase of this long-term secular bull market. 1st stage saw the miners closing their hedge books, the 2nd stage continuously presented us news about institutions and central banks buying or repatriating gold. The coming 3rd and finally parabolic stage will end in the distribution to small inexperienced new traders & investors who will be subject to blind greed and frenzied panic.
Bitcoin could become the "new money" for the digital 21st century. It is free market money but surely politicians and central bankers will thrive to regulate it soon.
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