A miniature potential parabolic trend has emerged in the XAU recently that is driven by greed and the fear of missing out. It is unhealthy, unwise and unsustainable.
Despite Friday's uptick in the XAU, which was a reflex action from Thursday's significant down day, it appears that a short term corrective action may now have started with a bearish engulfing pattern Thursday. Other suggestive elements include:
- The XAU index reveals a considerable distance between price & trend lines (see the XAU Trend Directional Indicator chart below)
- The SRA (cycle indicator) is at 100 on the weekly chart (0-100 parameter)
- The XAU has now been up 4 straight weeks and 7 of the past 8 weeks
- It also appears that the dollar is ready to temporarily bottom.
- Seasonality shows October not to be a favorable month.
This all adds up to at least a possible short pause in the gold market and the XAU Gold/Silver index. Not to hedge, but further parabolic trends could continue as the SRA on the daily chart (not shown) is still rising. This indicates a continuing residual and upward force and energy. However, caution is primarily indicated on a total outlook basis as suggested above.
The current overall gold trend is powerful with great sponsorship and shallow retracements. Many are afraid of missing out in a mania phase but there is little evidence that this type of trend is in force. There is a small parabolic trend but not a mania. A complete lack of confidence in the dollar plus clues indicated in the bond market (reversal + significant increase in rates) is not yet in play.
Gold/Silver Stocks:
Portfolio stocks are essentially back to near core position (70% of total) having sold a considerable amount in last 7 days. Weekly trends are still very positive in many stocks but are generally overextended on percentage basis. A short "rest" period of undetermined length is now anticipated for many of these stocks such as Silver Wheaton, Detour Gold and First Majestic, etc. Protective stops should be in place guarding large gains.
S&P500 and XAU Update:
Market Pendulum's TDI and Gravity Center charts, in any given timeframe, must both agree for any action to be taken and are currently in sync in both the XAU and S&P500. They have done well for the period displayed while filtering out the noise when others see disaster or a crash around every corner.
A continuing positive weekly TDI trend for both the S&P500 and the XAU indexes is evident in the charts below and are self-explanatory. Weekly charts are used primarily for their larger potential profit and a daily chart is used for setups/exits within that trend. Our website, located here, has complete explanations of our methodology.
XAU Gold/Silver Index - Weekly
S&P500 - Weekly
In Summary:
Trends are positive in both the S&P500 and the XAU in all timeframes. The XAU and gold/silver are in small parabolic trends that are unsustainable. Short term retracements are anticipated shortly.
Hope you find the information and outlook useful and we thank you for your time.
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Disclaimer: This opinion piece was created solely for informational, educational and entertainment purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Market Pendulum is not an investment advisor. Market Pendulum accepts no liability whatsoever for any actions taken as a result of reading this opinion piece or from the dissemination of any information from the website. The information contained in this opinion or on our website is obtained from sources believed to be reliable but is not guaranteed. Readers should not regard the Market Pendulum website, its opinions or its contents as a substitute for the exercise of their own judgment and due diligence.
