first majestic silver

Gold Firming With A Favoured Buy Signal

Market Analyst & Author
October 23, 2016

From Friday a week ago (14 October) through settling out the week yesterday (Friday) at 1267, Gold has continued to firm following its early October flushing to as low as 1243: over the past six trading days, price has risen out of the 1240s, through the 1250s, further still through the 1260s, indeed up into the 1270s. Therefore duly deserving of a tip of the cap by the Gold Longs is the 1280-1240 support zone: it has held, albeit Gold's 21-day linear regression trend remains down, as is the case (save for Oil) for every other one of our BEGOS Markets (Bond, Euro/Swiss, Gold/Silver/Copper, Oil, S&P 500).

Such trend being down implies the 1280-1240 support zone may simply be giving price a temporary reprieve, which is the unsettling news. Still, we below see in Gold's weekly bars the containment of price within said purple-bounded zone, the young parabolic Short trend having completed its third week as depicted by the mildly descending red dots: 'tis a big test now for Gold to hold and be bold:

But wait, there's more, which is the encouraging news. For we're getting a buy signal from Gold's "Baby Blues". The following two-panel graphic presents Gold's daily bars for both the last three months, and to the right, the last 21 trading days (one month). Regular readers know the baby blue dots are indicative of the day-to-day consistency of the 21-day linear regression trend. We're displaying it in this fashion to emphasize the trend being down per the diagonal grey line. Yet therein lies one of our most favoured buy signals: the curling upward of the dots, especially after their having gone below -80% on the blue scale. Whilst no quantitative trading signal is ever perfect, were you to go back through all the years of the third millennium-to-date, be it in applying this formulation to Gold, or to equities, or to points scored vs. points against in your weekend football analyses, when the blue dots turn the corner, the probability of whatever you're tracking to continue in the new direction is high. For the trader, the curling of the dots generally heralds/confirms a new leg is underway; the hard work is not so much in picking the direction: rather 'tis having a cash management plan firmly in place, 'specially should it not work out. Either way, as most of you know, the "Baby Blues" for all eight of the BEGOS Markets are updated daily on the website's "Market Trends" page. Here's the present picture for Gold:

The view is very similar as well for Sister Silver as she attempts to ward off having to wear her industrial metal jacket (in sympathy with a declining Cousin Copper) and instead stay adorned in her precious metal pinstripes. In fact, as those of you who read the daily Prescient Commentary know, we presently have a higher near-term Market Rhythm Target for Silver of 17.875 (last 17.530), but a lower near-term Market Rhythm Target for Copper of 2.0570, (last 2.0900) ... not that Copper isn't a worthy metal; 'tis just that some metals are worth more than others. Show us the way, Sister!

Speaking of "way", 'twould be a bit premature to state that our economy has lost its, given that 'tis been on a post-Labor Day up run. That said, our Economic Barometer encountered a few obfuscating metrics this past week, notably the Federal Reserve Bank of New York's Empire State Manufacturing Survey for October more than tripling the drop it incurred in September, whilst the month-over-month growth in core retail inflation slipped by -0.2% (from +0.3% to +0.1%): that's the fourth time since June 2014 a -0.2% slip has been recorded, during which time annualized gross domestic product growth has gone from +4.6% to the most recent reading of just +1.4%. Hardly bollocking along, that. Still, our first peek at Q3 GDP comes next Friday (28 October), so stay tuned! In the interim, here's the Baro:

Further with respect to the above display, the red line is the track of the S&P 500 index from a year ago-to-date, the market since July clearly having run out of puff, direction and vicissitude. In fact, the Econ Baro itself is showing more alacrity than the underwhelmed S&P. And whilst that Index remains extremely over-valued on a price/earnings ratio basis, (our "live" p/e settling yesterday at 35.0x), the market's malaise is belied by its monetary inflow. Direct from the "We Gotta Put The Dough Somewhere Dept." comes the following two-panel graphic. Its upper panel depicts the cumulative change in the S&P for the past 63 trading days (one quarter); the blue line is the cumulative moneyflow of the S&P's 500 components (volume x change x cap-weight) regressed into S&P points, (so it can be shown on the same scale). The lower panel is the difference of the Moneyflow less the S&P ... and can you believe it? This analysis suggests the S&P "ought be" 200 points higher than 'tis! Somebody's been throwin' some serious capital into this market, (without it actually rising); let's hope they can move as adroitly when it all goes wrong:

"But why would 'it all go wrong', mmb?"

Squire's rhetoric is really ramped up there, what? Still, we did have to chuckle when this past week featured a FinMedia piece entitled "Earnings hold the key to the stock market’s fate". Did they mean to say that such archaic measure of an earnings multiple was actually coming back into vogue? (No, for the content was void of such traditional valuation assessment; that baton was dropped in being passed from the prior money manager generation to that of today). But specific to Squire's question, allow us to repeat this graphic that we presented a few missives ago, as therein lie the catalytic answers. After which, at the end of the day, they'll say, "Well, earnings were never supportive of those lofty levels anyway..." Touché!

Remember: if your portfolio of air falls on your head, you'll never know what hit you (R.I.P.); but drop your standardized 12.4-kilo Gold bar on your big toe, and the pain shall remind you that you're still alive.

Indeed, speaking of bars, let's next go to the 10-day Market Profiles for both Gold on the left and Silver on the right. And as a week ago we hopefully noted could happen, Gold has now wrested itself back up above the dominant 1257 "Golden Ratio Retracement" level, whilst Sister Silver has at least regained her dominant 17.50 level. The near-term key is to still be north of those levels in a week's time:

And in turn, let's update the stack:

The Gold Stack
Gold's Value per Dollar Debasement, (from our opening "Scoreboard"): 2649
Gold’s All-Time High: 1923 (06 September 2011)
The Gateway to 2000: 1900+
Gold’s All-Time Closing High: 1900 (22 August 2011)
The Final Frontier: 1800-1900
The Northern Front: 1750-1800
On Maneuvers: 1579-1750
The Floor: 1466-1579
Le Sous-sol: Sub-1466
Base Camp: 1377
Year-to-Date High: also 1377 (06 July) or 1385 basis the December '16 contract
The Weekly Parabolic Price to flip Long: 1372
Neverland: The Whiny 1290s
10-Session directional range: up to 1276 (from 1247) = +29 points or +2%
Trading Resistance: 1267 / 1271
Gold Currently: 1267, (expected daily trading range ["EDTR"]: 13 points)
Trading Support: 1263 / 1257
10-Session “volume-weighted” average price magnet: 1261
Support Band: down to 1240 (from 1280)
The 300-Day Moving Average: 1214 and rising
Year-to-Date Low: 1061 (04 January)

Finally, a quick kudos to FinJournalist Myra Saefong, who in culling together an interview with State Street Global Advisors' head of Gold investment strategy George Milling-Stanley, wrote "Why gold will rise no matter who becomes the next U.S. president", which sidles along nicely with that which we wrote back in 24 September edition of The Gold Update: "...should Mrs. Clinton/surrogate emerge victorious, 'twill be printing-heaven pro-Gold, period. Should it be Mr. Trump instead, oh woe will be the Fed in terms of its governance then ahead ... and uncertainty surrounding the world's most scrutinized central bank ought well be pro-Gold." And now as shown at the outset, the "Baby Blues" are giving us a buy signal for Gold. Can it get much better than this? Of course: Gold could cooperate and truly take off. How would that happen? Buy Gold!

And yes, using both hands is a good idea...


Mark Mead Baillie

Mark Mead Baillie has had an extensive business career beginning in banking and financial services for two years with Banque Nationale de Paris to corporate research for three years at Barclays Bank and then for six years as an analyst and corporate lender with Société Générale.
For the last 22 years he has expanded his financial expertise by creating his own financial services company, de Meadville International, which comprehensively follows his BEGOS complex of markets (Bond/Euro/Gold/Oil/S&P) and the trading of the futures therein. He is recognized within the financial community of demonstrating creative technical skills that surpass industry standards toward making highly informed market assessments and his work is featured in Merrill Lynch Wealth Management client presentations.  He has adapted such skills into becoming the popular author each week of the prolific “The Gold Update” and is known in the financial website community as “mmb” and “deMeadville”.
Mr. Baillie holds a BS in Business from the University of Southern California and an MBA in Finance from Golden Gate University.

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.
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