Gold's downtrend channel asserts itself

The strength of the reaction from the top of Gold's downtrend channel indicates that another leg down remains in Gold's consolidation. Note the rapidity of the decline, and the fact that Gold closed below the previous up-leg's final segment. For those who missed this year's rally, Gold should be available for purchase at significantly better prices. It remains an excellent hedge against poor stewardship of the economy by governments and central bank eggheads. A move to the $1625 area is very likely in the short term. If my tentative wave count is correct, the target for wave C is in the 1400-1500 range. 

Liquidity-driven euphoria shifting from Stocks to Commodities

In a situation eerily reminiscent of early 2008, the new-found flood of liquidity appears to have found its way into the energy complex. Liquidity-driven trends need a story. In early 2008, it was "exploding M3 money supply". Today it is the Iran war story that speculators seem to have latched-on to. European Sovereigns/Financials/Stocks, and US Stocks have all flattened or turned down as Crude and WTI surge. Silver and Gold remain the major outperformers YTD but the rest of commodities - most notably oil is catching up very fast having overtaken stocks this week. 

From Zerohedge

As John Burbank of Passport Capital described, its possible that the oil complex does not stop until the US economy's back is broken. It would be difficult for the Fed to enter a tightening cycle in an election year, especially since they have clearly broadcast a loose monetary stance until 2014. Similar to early 2008, commodities (led by crude oil) can have a blow-off move that lasts for a few quarters and pushes marginal consumers over the edge, thus tanking the recovery. In 2008 high oil prices probably sparked the financial crises by pushing over-leveraged borrowers into default. This effect is qualitatively different from blow-off moves in say, precious metals, which are driven by sovereign & financial worries but don't affect the real US economy. Or high food prices, which are more of an issue for emerging markets than the US.

With LTRO 2 already priced in, and the Fed having been handed the baton of printing by the rest of the world's central banks this weekend at the G20 meetings, we suspect the liquidity will remain pumping in Oil until the CME steps in with margin hikes or some major earnings disappointment.

Technicals

In the Weekly chart below, there is a clear breakout. It is now very likely that the breakout surpasses the 2011 high at 115 and goes on to target the upper trendline of an Expanding Triangle. A price equal to the 2008 high at around 150 is possible, and maybe even higher. Any escalation of the Iran situation will just add fuel to the speculative fire. Weekly RSI is nowhere near overbought, indicating that the bulk of the move lies ahead of us. MACD too has plenty of room to run.

Platinum

Platinum has recently under-performed Gold. Historically Platinum prices have been at 50% to 100% premium over gold. However, more recently, the price of Platinum has fallen below Gold due to growth worries. During last year's correction Platinum found support at the 2007 highs around the $1350 area while Gold found support at $1500. That correction is clearly in 3 waves and the reversal of that correction is looking impulsive.

Platinum is is looking good for an extended run here. I would start small & add on corrections.

SPX Update -17/02/2012

The ideal projection for wave (v) of 5 is complete. It is now highly likely that the move that started in mid-December will correct/reverse. Price must lead the way, better not get ahead of ourselves. 

First, we need to close below the 1335-1340 area, preferably with a sharp move (gap down on Mon/Tue). That will signify that wave 5 is being corrected/reversed. 

If you are lucky to be positioned long since December do not exit before this happens. Failure to close below 1335 can mean that the fifth wave is sub-dividing, or that the wavecount needs to be revised into something more bullish.

Second, we need to close below 1300 in less than 2 weeks to confirm that the move since mid-December is being corrected/reversed.

Sensex Update 15/2/2012

The wave-count for the Sensex is not very clear at the moment. The one shown below is a guess and probably will need to be changed.

However the technical indicators are fairly strongly suggesting an imminent correction. We are at a resistance level that has help twice previously and are also at to top of the shallowest possible downtrend channel. 

RSI is overbought and negatively diverging suggesting the current move will end soon. MACD is on the verge of giving a sell signal.

All we need is for price to breakdown and confirm the reversal.

SPX update 15/2/2012

Things are getting interesting with the first real sign of weakness observed in the parabolic move for AAPL. The price has crumbled below $500. Let's see if dip buyers step in and try to keep its rally going. Wave theory isn't going to very helpful here.

The short-term count below suggests another move higher towards 1362 to complete the wave that started in mid-December. The last wave remaining would be the (v)th of 5th.

Immediate support is in the 1335 area. Below that would be a short-term reversal. 

After that, a quick move below 1300 (in less than 2 weeks) would be required to confirm the end of the move since mid-December. Otherwise a continuation is more likely.

Could AAPL just have topped?

It takes a very brave man to call a top for this stock, but I think it might just have ended a major move which started in early 2009.  Alternatively it might only correct the impulse from the April 2010 flash-crash. Another alternative is that it may have another iv-v to go in its Expanding Triangle, and the current move may just be iii of the Expanding Triangle.

Either way, any overlap with 420 would confirm that the latest advance is of a terminal nature, and that we are seeing "panic" buying.

I would need to see a sharp reversal to confirm this count, but I cannot see the current breakout turning into a 3rd wave given how overbought it is at the moment.

This is not a comment on the fundamentals for AAPl. It remains a phenomenally innovative and profitable company. Its growth rate, given its current size it simply unbelievable. However, keep in mind that excellent fundamentals could not stop it from correcting to 85 from 200 during the Financial Crises.

SPX - a new short term alternative

I started from a clean slate, trying to count all the waves on the ES (SPX futures) since mid-December.

One of the things that bothered me about the impulsive counts so far is the lack of a proper impulsive, powerful move during this entire period.

One possible way to interpret this rather difficult-to-count period has surprised me. It could be that the period until Jan 26th was a long wave 1. That would put us in the initial stages of a 3rd wave. With most EW analysts focused on completion of bearish long-term counts, this wave count could surprise people and provide the acceleration at the "point-of-recognition" that has been missing so far.

Although my Q1 2012 Forecast calls for an upcoming consolidation period, I think its important to track this as a possible wave count as a valid possibility if the next correction doesn't go beneath 1300-1315.

SPX Q1 2012 forecast

After catching the End of the Panic of 2011 I have been nervously carrying a bullish bias with minor modifications to the wave counts for almost 8 months now. It has been difficult psychologically. The market truly has climbed a wall of worry during this period, as it has encountered stiff resistance with a very negative macro background.

Over the past 8 months various technical resistance points has been methodically and decisively overcome. While staying alert to bearish possibilities, all this while my main count has remained bullish. 

Technical analysts must always maintain respect for the price action and allow the wave structures to inform their bias. In that spirit, note that last week's rally vaulted over the trendline connecting the Jan 2008 and April 2011 tops. Structurally, this is a very bullish event that is difficult to ignore. Coupled with the fact that the Nasdaq and DJIA have been "leading"  this advance, and that the Nasdaq already taken out both the previous highs, I can now confidently focus to the most bullish of the three bullish counts that I have been carrying in 2012.

In the chart above I layout a roadmap for the rest of Q1 2012. I think the market will now start to digest the gains of the past month. I expect the month long wave (3) to complete its internal wave 3 soon and correct in wave 4. In doing so it must stay above the wave 1 extreme at 1285. Wave (3) should then complete with a rally in wave 5 to challenge the 2011 highs at 1370. Beyond this we should see a wave (4) correction and another rally in wave (5). 

The internal structure of these upcoming waves is too far out to be predictable. 

For the next quarter I expect to see support in the 1285-1300 range, and resistance in the 1350-1375 range. The overall structure should be sideways, perhaps with a slight upward bias. 

I also will keep an eye on the VIX as it finds support in the "Greed" zone. Any visits to the "Fear" zone should provide buying opportunities for the SPX.