Overview
The overall long term price trend and fundamental background for gold, silver and the XAU is clearly up. This is irrespective of the apparent current conflict in cycles. Downturns, such as we have all recently experienced, provide one with an opportunity to acquire real assets at “on sale” prices. We are going to review the primary trend and cycles within that trend.
In this setting, we try to keep it as simple as possible using a primary trading platform of the Trend Directional Indicator (TDI), Gravity Center (GC) and the Pendulum SRA cycle indicator while ignoring traditional indicators. By excluding traditional indicators, we are limiting the decision making process while eliminating some of the extraneous noise.
What is the Pendulum SRA Indicator?
The SRA cycle indicator provides cyclical guidance within a trend in any chosen time frame. The overlaid green SRA cycle indicator on the charts below (scaled to a 0-100 parameter) is a derivative of Gravity Center measuring speed, acceleration and resistance and acts as a pendulum indicator. It also provides an early warning of trend changes which we will cover below.
In short, Pendulum's Trend and Cycle chart blends the overall trend of the TDI or GC indicators with the short term cycle (SRA) in one integrated view. These remarkable tools demonstrate the primary trend and the current cycle within that trend, in any time frame, for a significant trading advantage. For additional information on these indicators, click here.
The Pendulum SRA Mystery:
The SRA indicator was first discovered accidently many years ago while investigating the deficiencies of traditional momentum indicators. By sheer luck, it was constructed using a certain period value of time which ultimately proved to be the most correct and reliable number. Amazingly, the results for the SRA, using this period value number, became distorted if higher values were utilized. The reason for this is still an unsolved mystery to this day.
The period value is also a Prime Number. These are numbers that can be divided evenly only by 1 or by itself. The number 12, for example, cannot be a prime number because it can be divided evenly by 3 or 4, as well as by 1 and 12. The period value is also found as a member of the Fibonacci growth sequence numbers found throughout nature.
Most interestingly, precision and reliability for the Pendulum SRA is more accurate in the longer time frames (e.g. weekly and monthly) but we do not have a coherent answer as to why. Recent monthly examples for the S&P500 and the XAU can be viewed here. We have used this SRA indicator (0-100 parameters) for many years with reliable results.
In any event, most traders do not care what it is or how it is constructed but simply that it works. We do have to give credit to Trader Dan Norcini of JSMineset.com who recently was one of the few to have noted its importance and understood its value.
Current status of the SRA - A Conflict of Cycles:
In early January, we expected only short term bounces in the XAU due to a daily basis downturn in TDI and GC indicators. A possible goal for the XAU of 180-190 area was suggested. So far, the lowest closing price was 196.
On January 20th, we noted that the weekly XAU would have to regain 210-212 within 5 days to avoid a bearish weekly downtrend and that the SRA cycle indicator was not amused by the recent uptrend on a weekly basis and had declined to near 3 (0-100 parameters), which was somewhat encouraging but not definitive.
Although, not clearly visible on the XAU Weekly TDI chart below, that weekly crossover has now occurred. The SRA cycle indicator, however, stabilized at 3.4 (0-100 parameters). This does not negate the possibility of a further decline to absolute zero but that event is currently considered unlikely.
XAU TDI Weekly
Good News for the XAU:
Meanwhile, the daily XAU has improved in terms of the SRA. This is demonstrated in the daily chart below creating an apparent conflict of cycles with some understandable confusion on the part of traders.
The reason is very simple. Quite frequently, when the XAU weekly signals a downtrend, almost simultaneously, the daily will bottom. In other words, the weekly down cycle has commenced but a daily uptrend within that weekly down trend cycle has begun. This projects a short term daily up trend of limited degree and duration followed by a further down trend SRA cycle on a daily basis. This typically can occur 1-3 times until the daily and weekly cycles synchronize.
XAU TDI Daily
In Summary:
The overall trend for the XAU from a technical and fundamental perspective is still up. There is a current and distinct conflict of cycle activity providing extraordinary volatility but a current opportunity.
A daily bottom is slowly emerging that should provide a significant tradable advance within the context of a weekly down trend. One always needs to trade within the context and setting of the next higher trend cycle. These comments also apply to the gold/silver market as well, since their structure and cycles are quite similar.
We hope this commentary has been helpful in understanding the current market environment for the XAU. Comments and questions are always welcome.
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