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Gold Price Is Set Up To Trade Lower Before Bottoming

Technical Analyst, Trader, & Founder of Technical Traders Ltd
March 4, 2021

Markets are seeing sideways action today on Wednesday, and we'll be visiting gold and S and P 500 broad equities action with Chris for Mulan chief market [email protected]. Chris and I will be talking technical trading and analysis, and we'll be doing a live charting, uh, exercise with Chris.

It'll be a fun little exercise, a fun little game, Chris. I'm glad you're here on the show with us today. Welcome. Thanks for having me, David. Today, everything's just kind of is calm the right word, Chris, how would you describe it? Um, you know, the last few days we've seen quite a bit of volatility in terms of price swings in the stock market.

Uh, I think it feels like the calm before the storm though. I think this market, the stock market is setting up for potentially a pretty big downdraft. And, um, I can show you here on the charts on the S P 500 and compare to the leading index is like the NASDAQ. In other sectors. So, um, you want to jump right into that?

That's that's do it. Chris. Let's jump right into the spy. All right. Sounds good. So if we take a look at these two charts you see on the screen, this first one here that's green is telling us that we're in an uptrend. The green bars mean that. And so the S P 500 has been bouncing it's way up this 20 day, moving average.

Uh, whenever we start to get these lime green areas, that's when the stock market. It's actually becoming short term oversold. And it's usually when we start to see Bo a value hunters kind of step in and buy the market back up now over the last few trading sessions, we've been seeing it trade in this very large range.

It's been trading sideways. A lot of damage has been done behind the scenes in terms of the amount of sectors that have gone from strong uptrends to down trends. And if we quickly flip and take a look, this, this, this column right here is a short-term trend and most of the sectors have gone. Into a downtrend.

So that's something we gotta be really aware of. And, you know, a lot of people are looking at the S P 500 to see what the market is doing. But if we actually peel it back a little and look at the leading sectors, which I just showed you that have been turning down and we look at the leaning index, which is the QQQ.

The NASDAQ here, you can see the trend has gone into neutral and in the last two trading sessions, it's gone red, and this is a pretty bearish sign on the charts of where to just look at this pattern. Um, w there's quite a bit of downside. We can use a Fibonacci extension and get a downside target of where this breakdown could occur.

And you can see it's quite the drop from where we are today. Right now. We could see another about five and a quarter percent drop in the SPR, the NASDAQ, and that will, you know, really spark some pretty big selling across the board. It's going to spook a lot of traders investors. Meanwhile, it's a perfectly normal measured move to the downside.

Chris, have we seen these patterns at all in the last six months? Uh, no, we, we haven't, we've, uh, we've been in a strong uptrend across the board and all the indexes and all the sectors. So this is the first kind of a shot across the bow that the charts are saying, Hey, the leaders are now lagging and they're underperforming and that's not a good sign.

We're seeing huge outflows in the tech sector, in the, all the big leading sectors there they're really getting drained money is flowing out fast and furious. That's not what we want to see. So I think, um, You would say, this is your prices. You would say, this is the first sign of weakness we've seen since March 20, 20.

Uh, we we've had, we've had some in the past. The last September was the last, this time we had this correction, a correction like this. So this is just the start of potentially a one or two months, uh, pullback sideways move. Doesn't mean it's the top of the stock market by any means. It's just saying this market's overdone.

It's got to cleanse itself and it could only take a few weeks, but it could drag out for two or three months. We just have to wait and see. Right. Well, when you're looking at these technicals, Chris, what, what, what goes through your mind when you're, when you're analyzing these stock patterns? So where can we take a look?

Let's take a look at the NASDAQ one more time now. Uh, can we, can you pull up a NASDAQ? Yep. This is the NASDAQ right here. Let's go to the daily chart. Let's look at the daily charts. Yeah. Let's uh, so if you, if you zoom out, obviously we're seeing, well, if I'm reading this chart correctly, the, the, the moving average, uh, shows an uptrend.

Now, I'm just wondering why at this point, you're saying we've reached sort of a local top here. What indicators are you looking at to suggest that. Right. So, uh, w one of the strongest thing is to look at where a sentiment is in terms of intermarket analysis. So, um, there's a couple of different layers, like in the market, you kind of peel it back like an onion.

So the first one is we're starting to break the 50 day moving average. That's not a good sign. Um, when we look at it from a shorter standpoint here, this, this drop we've had in the sideways consolidation is seen as a bear flag. That is, uh, a bear sign. That's a half-way move. So. Whatever this move was to the downside should continue the same over here.

So the pattern is also showing us bearishness and when we look at how the stock market's performing, um, compared to gold, um, utilities, bonds, um, It's starting to give us we're, we're a really close tipping point to the sentiment actually shifting to risk off. So people have been piling into the stock market for several months.

We're actually seeing money start to flow out of it. And the stock market's selling off faster than the defensive sectors like utilities and things like that. And so when those sectors are actually holding up better than the stock market, That is a sign, a red flag that big money is rotating out and it's just trying to park its money somewhere, a little more defensive.

And so when you have those three levels, where momentum on the moving average is shifting to the downside technical patterns are breaking down in market sentiment is shifting from being full on risk. They want to get into any penny stock, any asset to now, people are like, Ooh, get me out of these leaders.

I want to move somewhere boring, like utilities or bonds. Although there has been a huge overflow in bonds recently. It's it's a big red flag. I wonder, have you, have you looked at specific sectors within the S and P 500 that are showing signs of strength? Right. Um, there, there are some, some stronger sectors, if we were to, um, look at some, the energy sector really is, is definitely holding things up.

Um, we've seen it buck the trend we've seen, uh, this is XOP, which is the oil exploration sector. It's been moving higher. If we look at OIH, which is the oil holder's ETF, it's been moving higher. So very strong along with the, uh, the financial sector. You look at XL F. Uh, we've just been seeing, you know, the banking, the financials, uh, really buck the trend and go the opposite direction.

So there's definitely some pockets of. Of of hotness in this market. But when you look at like the past leaders, you look at like, um, uh, the market, uh, it's at a really sharp pullback, you know, it's down like 20%, same with solar. Um, so the big leading sectors are underperforming in some of these old, uh, big, boring sectors, like financials, energies are coming back to life.

But the problem is if this stock market rolls over pretty much all sectors get pulled down with it. And that's why we've moved to cash. There really isn't a safe place to be when the stock market's not favorable for stocks, you just. Really don't want to be in stocks. That's the way I see it. All right.

Let's move over to the middle now. So, uh, so I'm getting the sense that you're not super bullish on the stock market. Would you be, uh, would you, would you, would you be trading at sideways or are you, would you hold it, would you, would you, would you be shorting edge? What would you be doing? Right. So, uh, right now, no, I don't short the stock market when we're in a bull market.

Uh, believe it or not just when you, you get a qualified, short signal, usually, you know, in a bull market for stocks, uh, the market puts in a bottom and a lot of times it'll just trade sideways and it really doesn't go a whole lot lower. So shorting. In a bull market is really, really tough unless you're trying to pick a top a, then there's some, there's actually some room, but there's no point, uh, I don't, I don't pick tops.

I don't pick bottoms that way. Um, so we just stand aside on the stock market and what we, what ideally I would almost like to see here is the stock market. Have this leg down another five, maybe even 8% or more. Uh, and that's going to create some fear in the stock market and it's going to carry over most likely into metals.

Typically, when we see, um, the VIX spike, we see fear, uh, rise in the stock market. We see metal sell off a little bit, and I think we could get a Washoe low here in gold. In silver over the next, um, several weeks or over the next couple of months. I mean, we can see here that gold, this is a, uh, a weekly chart of gold.

It put in a multi-year basing formation. It finally broke out in 2019. And from the start of this new kind of bull market phase, you can see there's just these basic time cycles. And we've still got about four to six months of the price chopping around trying to find a low before. I think it starts another move higher.

And this could. Coincide very well with a multi-month pause or pullback in the stock market. It doesn't mean Gold's going to sell off, uh, anything significant here. It's actually a very strong support zone. I think it's going to kind of bounce bottom and struggle for a little while until, um, you know, we see some selling in the stock market and people become panicky.

And, and usually after that panicky wave in the stock market, that's when people move to the gold and defensive place. So that's when we'll see them really take off in a big way and outperform the stock market. All right now go, you said is headed for a basing pattern or perhaps even lower levels. Is that what you said?

Uh, could you, could you clarify what you meant by that? Sure. So looking at, uh, at the gold, the gold chart, it's made a really strong bull market move, a bull flag. It's pulling back its had a multi wave correction. You could argue. There's a, um, you know, there's, uh, uh, one, two, three, four, five wave correction.

We're picking up speed to the downside. Um, if we look at the daily chart, you get a feel for the kind of these, these cycles that we've had. You get these kind of. Waves of fear in the market. Something like here is something like here, we're kind of right back into that area where it's, it's made a new low it's flushed the market out.

I think we're going to start to see, try and put in some type of bounce. And I think it's going to try and carve out a bottom. When you look at this chart here, it's a, it's a very significant level. This is the whole, um, Market hiccup here from the COVID, the COVID crash and the recovery. So there's a ton of volume through here, and that means there's going to be a lot of support as it comes down into that area.

So I think we're going to see it try and put a bottom in. And of course our cycle eventually is going to kind of bottom out somewhere over here. So this market could consolidate trade sideways, try and maybe put in a bounce and a double bottom or a triple bottom, and then hopefully start to rally with the next cycle going higher.

We've already seen sort of this multi-year saw downwards, whatever you like to call it. This bear trend, it is technically a bear trend and it's, it's just continued to go down and lower today on Wednesday as we speak Gold's down to the 19 bucks and people are just wondering where the bottom is. Can you clarify if there is such a support level on the bottom?

Um, ideally, I mean, there's a, there's going to be every decade is going to act as a little bit of a support level. So 1800 and then 1700 1600. Um, when you look at this, this chart pattern right now, we're kind of, we're kind of just drifting down. Ideally, we're going to find support around this 1700 level.

It's, it's kind of right through this pivot where we put in a bunch of highs here and then the market traded above it and bounced on it several times. So this 1700 is a whole number. It's also a very significant level where prices either stuck below it or it's stuck above it. And right now it's tagged that level and it's finding support there as of today.

So we need to see if it's got some traction. Now I do feel like it could pull back potentially a little further. If we were to go to a weekly chart, we can do a Fibonacci retracement and get an idea for, for where, uh, gold could pull back from this last initial major run here. Yeah, we could see. Using Fibonacci retracement.

Typically we see a bull flag pull back to this 38% retracement all the way down to a 50% retracement. So we're coming into this box between this purple and this kind of ready pink line here. This is going to be the sweet spot and that's 1650 ish to where it is now 17 and change. So there's going to be, hopefully that's going to act as support.

Now, if we break below the 50. Then it's actually losing a lot of momentum. We don't want to see it come down. Really the six one eight. That's all, that's quite a bit of damage to the chart. It'll be definitely a significant support level. Simply if we draw on the, on the chart here and put a line across there, you can see not only is it a Fibonacci support level, but it's a pivot low it's a pivot high.

It was a breakthrough level. And then a major low, major, low. And then we traded through there. So very significant lines. So we're looking at, you know, 16, 38 is kind of the line in the sand. We want it to stay. If it breaks that it's going to 1530, um, these are some pretty extreme lows. I don't think we're going to get down to those levels, but, um, you gotta be aware of, it'll still be bullish.

If we go in there, we're still going to be in a full bull market. It's just, we don't really want to see it. Pull back. Sorry. Can you clarify what you mean by w why would it still be bullish if you hooked down to lower levels? I'm just confused by that statement in the grand scheme of things. This is the, this is the last real significant pivot low.

This is back in March, April. So even if we got down to these levels, we're still making a series of higher highs across the board, our sorry, higher highs, and we still be making higher lows. So we're still holding up. We're well above this, this bull market zone here, um, what it would just be is a very big consolidation.

So if we were to just kind of draw a line across these. Depending on where it goes. Ideally we'd want somewhere for price to somewhere, stay above this yellow line in order to keep that momentum. But the real levels that we want to see held is going to be right across here. We don't want it to come below a 1440, and that's a long ways away.

I don't think it's going to get there. I think we're really close to it, bouncing bottom and, uh, incorrectly. But, uh, if it breaks 1440 we're, it's an a, it's an, a massive, uh, You know, uh, bearish phase really, it's just a choppy phase that you don't really want to get involved with it, but that's a long ways away.

I don't see that happening. I think we're going to find support somewhere between 1640 and the 1745 and is going to try and find a bottom over the next three or four months with this cycle low. And then, and then work itself back up to these eyes and hopefully go back beyond that final question on gold.

Now we, uh, comparing it back to the spy. Usually we see. An inverse correlation between, uh, on the short term. At least usually we see an inverse correlation between the, uh, equities, indices and gold. Now you're saying that both of these asset classes could see more downside action in the short term. So they're moving in tandem.

Is that normal? Yeah, it's very normal. I mean, what happens is when the stock market has, uh, for example, the NASDAQ's on the verge of breaking down. A lot of people don't, don't realize that the stock market is on the verge of a five to 8% correction. If it breaks down, it's going to catch most people off guard because we're not seeing any real fear in this market.

Everyone's buying call options. We haven't seen any pop or spike in, in put options. Uh, people, the VIX is low. Um, it's just there everyone's dumping bonds. They're just, there's no protection out there. People are just still piling into stocks. And when they get hit with a kind of a shocking, all a drop in the market that they're like, Oh my gosh, how did this happen?

Or, you know, I was not expecting this to happen. They start to liquidate everything and they panic and we see this over and over again. You'll see gold and silver. You know, there's only a sweet spot in the stock market when there's a lot of fear and it pulls gold and silver down very quickly. It's short-lived just like in COVID it just gets pulled down from margin calls from people liquidating.

They don't know what to do, but move to cash. And then they, then they rebound right away. So it's very short-lived after that rebound. They'll typically outperform the stock market for quite a while. So it's just a short-term, uh, kind of hiccup, uh, is affecting metals at that point. All right, Chris, we have a fun little exercise now.

And, uh, this is, uh, for the viewers who haven't done this before. It's a chart game. It's pure technical analysis. Let's take a look on my screen now while you'll see it. A chart on the screen. It won't tell you the game will tell you what ticker it is is what timeframe it is. They'll just give you a, it'll just give you a chart like that.

And what you have to do is you have to decide to buy short or just next bar means hold and do nothing until, until the next trading session comes. Um, give it a shot, Chris. Yes. Sure. Let's see what happens. That'll be fun. First of all, I know you like moving average, so let's put in a 20 day moot ma anything else you'd like to put in there?

Uh, you can throw in the five day. I like those too. They're great for a swing trading. I don't know what timeframe this chart is, but we'll just rock and roll with it. All right. So that's, uh, take a look. What's your first reaction by short or do nothing. Let's get steel here. All right. Okay. Oh, boy, it's got news.

It had an event. All right. Yeah. Uh, yeah, nothing. I don't trade jobs and noise as you know, so I avoid complete chaos. Okay. That's interesting. Let's keep going. Let's keep going. Keep going, keep going. So, so far it says we, you know, a top here, it's got a P and L of nothing. Cause we haven't many trays yet.

But as soon as, right. So it keeps hitting resistance. It keeps hitting those previous highs and selling back. There's good volume. So I don't, I don't want to get involved. It's on the verge of potentially breaking here. Another book. Yeah. I'll have to clarify. This is a very short term chart. I know you're not a day trader, but that's just the settings of the game.

Um, so you'll see, it's moving by five minute increments here. Oh, okay. If it's in the morning. Okay. So yeah, early morning, if you're a day trader from nine 30 to 12 is when you want to trade. And then after that you avoid the market pretty much the same time, but I just changed the layout here. Um, my apologies, but anyway, if the same thing so we can, uh, continue.

Sure. All right. All right. So we, we can get in here so we can, we can buy. All right. It's a, it's broken. It's broken above there. We'll see, it's got lots of news. It's a pretty volatile, uh, play here, but, uh, keep holding like next, next. Okay. We're flat now. Yep. Next, uh, smaller that good. Next one down next, next bull flag.

Hopefully it'll break to the upside. This is a super volatile one. Okay. Next. You can, yeah, just kind of, you can click it at a steady, at a steady speed arrow. All right. I'm looking for, for it to go to the upside here that looks like it should pop and break to the upside. Hopefully. What does that blue line telling you right now?

The moving average. Yeah. Yeah, it's, it's telling me on average there's accumulation going on. There's people buying the trend is up the trends, more likely to continue than it is to reverse. So if the trend is up, that's a good sign while you're doing the five day to stay above the 20 day. Um, in order for it to stay strong while we're up a lot.

So that's, um, now I noticed you're not going in and out. I mean, that's kind of your style, right? Yeah. I mean, uh, for, for, yeah, I don't, I don't get in and out. I mean, I'm trying to play these swing trades. Um, Whether it's day trading or not. I mean, I'm not looking to scalp for few pennies. I'm looking for a pattern to play and complete.

Generally I'd throw a Fibonacci extension on there. I'd get an idea where the first target is the six one 8%, uh, extension move. So this is starting to break down a bit, looking a little bearish. You can keep going. Okay. So I, I get out on this next bar here. I'd be outsell. Yeah. All right. So we're at, we're flat right now, which is, I guess, good.

Or do you look at the volume at all by the way? Yep. Yep, I do. Okay. So I'm just, I'm just moving ahead here. So we're not in, we're not in the market right now, right? So the moving averages are kind of crossing. They're going flat or down the five days below. It, I'm just not a huge fan of, uh, of trading, you know, being long when they're trending down.

Right? Yeah. So now, now we're back into an uptrend and setting some new highs. We've got some good volumes so we can get back in here. We could try it, go for a run. I it's different when there's not real money on the line, but you can keep going. I mean, if, yeah, just keep on clicking there and we'll keep going.

I'm not a fan of the, uh, big selling volume spikes there, but every time we poke these new highs, big sellers step in. So we want to stay above that previous low. Hopefully it'll. Keep going. All right. These rerun the end of the day real quick.

Okay. So, right. So w w walk us through, what's going on in your head now, as it's kind of trending back up now we're neutral like this. Yeah. So this is a little right now. It's, uh, it's kind of in the middle of a range of trading range. Hopefully it'll break higher. Um, It's trying to consolidate. I can't see the time of day that we're trading here, but it's two 45 right now, by the way.

Okay. So the, hopefully be a little end of squeeze here. A little higher ed, the next bar. It must be 15 minute bars. Oh, I see. They're five minute bars. There you go. Know it's the end of the day. Get me out. There's the squeeze. Yeah. Game over masterful performance is telling you we've got a profit of 90 bucks on our position on a a hundred thousand dollars her position.

Wow. Okay. Well that was fun. So that was a, uh, I mean, I, I kinda, I kind of got your style. I thought I actually, I should've selected the swing trading option maybe would have given you a longer timeframe, but that gave you that gave you a one, uh, one, uh, uh, uh, Kate's telling you, it's telling us the date range of, um, when we, but that's not true.

It's only one day, but, uh, okay. I, I sort of get a sense of your style. You, you, you buy and hold, you'll look for patterns to hold, to break out or break down, and then you, and then you get in, you don't sort of just trade the choppiness. I don't treat shop. Nope. Okay. Well that was very educational. Thank you very much, Chris, for, uh, letting us give you, uh, give us an insight, giving us an insight on how you trade and giving us a glimpse of your head, how that works.

Thank you very much. That was great. And, uh, thank you again for your insights on the markets. We'll look forward to the next market action and catch up you then. All right. Thanks David. Take care. Thank you, Chris. And thank you for watching Kitco news.


Chris Vermeulen has been involved in the markets since 1997 and is the founder of Technical Traders Ltd. He is an internationally recognized technical analyst, trader, and is the author of the book: 7 Steps to Win With Logic

Through years of research, trading and helping individual traders around the world. He learned that many traders have great trading ideas, but they lack one thing, they struggle to execute trades in a systematic way for consistent results. Chris helps educate traders with a three-hour video course that can change your trading results for the better.

His mission is to help his clients boost their trading performance while reducing market exposure and portfolio volatility.

He is a regular speaker on, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several financial hubs like


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