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Mini Weekend Report

By Jack DavisMarket OverviewMar 20, 2017 11:36
au.investing.com/analysis/mini-weekend-report-200179408
Mini Weekend Report
By Jack Davis   |  Mar 20, 2017 11:36
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Originally published by Chamber of Merchants

Good morning everyone.

I’ve been flat out with some charity events that have consumed my time over the last 2 weeks. This will continue to be the case for the next 2-3 weeks. So I’ll cut to the chase, as usual.

Gold Miners

Gold miners continue to be volatile. It appears that while gold is holding stable, the miners are not.

Market Vectors Gold Miners (AX:GDX) is down 0.44%… No big deal…for now just apparently a healthy correct which has driven price down to short term support.

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VanEck Vectors Junior Gold Miners (NYSE:GDXJ)

Junior Gold miners had a rough day on Friday, closing out American trading on -3.12%.

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Chart

This is a little more unexpected as gold has been holding up around $1229 USD.

NUGT and JNUG

Direxion Daily Gold Miners Bull 3X Shares (NYSE:NUGT) is down 1.33%

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While Direxion Daily Junior Gold Miners Bull 3X Shares (NYSE:JNUG) is down a whopping 9.33%…giving back much of its gains from last week.

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Gold

Gold has been performing strongly after the selling pressure leading into the FOMC meeting….

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Gold Head and Shoulders Risk

However, gold must start trading above $1240 in the short term or risk developing into a head and shoulders pattern:

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Chart

Here is the Standard Head and Shoulders Pattern from Wikipedia for comparison:

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“Head and Shoulders formation consists of a left shoulder, a head, and a right shoulder and a line drawn as the neckline. The left shoulder is formed at the end of an extensive move during which volume is noticeably high. After the peak of the left shoulder is formed, there is a subsequent reaction and prices slide down to a certain extent which generally occurs on low volume. The prices rally up to form the head with normal or heavy volume and subsequent reaction downward is accompanied with lesser volume. The right shoulder is formed when prices move up again but remain below the central peak called the Head and fall down nearly equal to the first valley between the left shoulder and the head or at least below the peak of the left shoulder. Volume is lesser in the right shoulder formation compared to the left shoulder and the head formation. A neckline is drawn across the bottoms of the left shoulder, the head and the right shoulder. When prices break through this neckline and keep on falling after forming the right shoulder, it is the ultimate confirmation of the completion of the Head and Shoulders Top formation. It is quite possible that prices pull back to touch the neckline before continuing their declining trend”

Gold Upside

Now there is a possibility of course that gold continues gathering in strength to the upside, however it is not my opinion that the time is right yet…

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Chart

However, always remember that Gold is one of many options for global money to flow into. Gold’s movement largely depends on the currencies and bond market….

US Dollar

As you can see, the dollar is due for a short term bounce after the ” Buy the hike news, sell the hike” rate rise:

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Chart

If the dollar does bounce, gold will be under pressure until it’s over.

Yen

The yen appears to be consolidating. This is dangerous for gold.

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Chart

Not only is the yen due for a bounce, but if indeed it holds this price level, it would be the set up for the next leg in the yen…

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The yen (USD/JPY) must break lower than 112.50 for gold to have its next leg up. Otherwise gold’s head and shoulders pattern will become more likely, meaning gold miners will be in for some hurt.

Euro

Similarly, after the Dutch Elections, the euro's rally began faltering and has not broken out of the trading box.

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A further weakening will see the dollar strengthen and hence, the gold price may weaken in the interim.

Government Bonds

Government bonds are up against resistance… If bond prices break higher, then yields will come down which would be good for gold. However, bonds are looking a bit weak for my liking…

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Chart

Conclusion

I would like gold to go higher, however it does appear that the counter trading instruments are all due for a bounce or reversal, even if its just in the short term. The first round of the 2017 French presidential election will be held on 23 April 2017. Should no candidate win a majority, a run-off election between the top two candidates will be held on 7 May 2017.

Between now and April 23rd there may be a good entry point for gold in the face of a weakening Euro leading into the French election. I also expect some weakness in Australian Gold miners, some of which had a great rally (which I had missed. See below).

Missing the Trade Does not Mean Chasing the Trade

I was completely comfortable exiting my Evolution Mining Ltd (AX:EVN) trade at $1.92 as I could detect some weakness in the pricing. However, I did not trade further on the Friday as price dropped to $1.89. Now, this was to my own detriment as support held around the $1.90 mark. I literally was just not trading on Friday after 8am and I thought nothing of it.

However, by Monday EVN had risen to $2.04/$2.06… and after the rate hike it had rocketed to $2.25.

Yay for my entry point, but self- reflection time for interfering with my initial set-up.

The points I wish to make here for you are:

Everyone misses trades. It happens all the time. Every day. In fact you can scan every stock on the ASX and there will be over a thousand trades that I had missed on Friday. And so will it be in the future.

But there will also be trades that are gained and that will also continue in the future.

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Chart

How much did I not gain? Roughly $25k.

But here is the point of consistency: Missing a trade does not automatically mean I need to “catch up” with a poorly timed entry. The reason the initial entry of $1,92/$1.89 was great was due to it being a spring support level.

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Chart

Note the volume on the Friday, yet the price of $1.90 holding steadfast…. An excellent entry point with low risk.

But missing out on the trade does not mean I need to expose myself to unnecessary risk at a poor entry level.

Rather waiting for another opportunity is the best strategy for me.

That opportunity may be found in Ramelius Resources Ltd (AX:RMS) (barring any bad news that I am not aware of):

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Chart

Given that the VanEck gold miner's (NYSE:GDX) ETF was sold down on Friday, it may be one of the best opportunities in relation to the other miners which are currently still shining from the recent rally.

Keeping an eye on this one.

I expect some weakness in the miners in the event the dollar, yen, euro and bond market reverse from their support and resistance zones. RMS is at or just below support which may offer a low risk entry into an otherwise volatile and fairly unpredictable market.

Think better.

Mini Weekend Report
 

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Mini Weekend Report

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