Gold & gold stocks update

Gold and Gold Stocks are now seeing extreme investor pessimism & a host of technical data is pointing to an extreme in undervaluation and sentiment. A good update by Pater Tanenbrarum - http://www.acting-man.com/?p=15935

This is not to say we are at an imminent turning point, only that one could be very close. I would be surprised to see Gold staying below the recent low at 1625 for very long. Upside resistance is at 1675, 1700 and then the (red) downtrend channel at 1750.

Previous Update: http://elliottwavecounts.blogspot.co.uk/2012/02/golds-downtrend-channel-asserts-itself.html

SPX update 2012-03-26

I see this correction as the first of 2 significant corrections in the next up-leg of this uncompromisingly bullish market. The uptrend should continue over the next couple of months. SPX has already climbed 300 points since the End of the Panic of 2011. There are a good 40 or 110 SPX points left in this bull market before a significant correction. 

Two project targets for this bull market move are 1440 and 1510. These are based on previous significant support/resistance levels and  Fibonacci Extensions. 

The main scenario has a target of 1510. A wave-count is presented in the SPX futures chart below. In this scenario wave 5 of (3) is extended. The exact internal subdivisions will continue be a uncertain until towards the end of the move. 

In a less bullish scenario the current wave ends in an Ending Diagonal at 1440. This scenario is not shown on the chart. We are already some way through the Ending Diagonal if this is the case. This view is supported by the negative divergence in the RSI. In this view wave 3 of (5) is extended

SPX Update 2012/03/09

Yesterday's rally above 1366 leaves the decline from the wave (3) high as a corrective structure. Crucially, the first wave of the decline stopped at 1339, falling short of the 1337 level required to confirm the end of wave (3). For now this keeps alternate, more bullish counts alive. I will elaborate on those if the market makes new highs in the next couple of days. Overlap with the wave 3 high at 1333 would have eliminated several of these.

For now, I expect resistance at 1375 to continue to contain the advance ... not enough time has passed in wave (4) for the correction to be complete. I tentatively label the first decline to 1339 as sub-wave 'a' of (4). The next few days should produce a choppy overlapping sub-wave 'b' in the 1139-1375 range.

SPX Topping

The Ending Diagonal has one small up-leg remaining that should make a minor high in the 1375- 1380 range. This should be followed by a sharp initial decline that should retrace to the the base of the Ending Diagonal (around 1335 -1340). 

The Ending Diagonal completes wave (3) which began in mid-December. Wave (4) can retrace all the way to 1267. A 1300 target is more likely.

Bonds look ready to rally in the "f" wave of a Diametric. Notice the symmetry in shape between waves "c" and "e" - they appear to be mirror images of each other, suggesting that wave "f" should resemble wave "b"

I am curious to see how Crude Oil will react. A clear inverse Head & Shoulder pattern has established itself that targets $130. 

However if stocks slump  crude could move the other way as well. Resistance is at the top channel line  - that is where I would expect a reaction.

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.