Short-term Elliott Wave of Gold and Silver

As mentioned before, we are about to embark on a Gold Analysis Marathon to understand Gold's future prospects. Gold has been declining for the past ~3 years, and is in a profound bear market. Since topping out at 1910, gold has declined below 1200: ~38% decline. While Gold has been declining since September 2011, Stocks and Bonds have been rising (Bonds have started declining recently). This development has resulted in Gold market's oversold condition, while U.S. Stock Market has rose to extremely overbought levels.

Warren Buffet once said, "One should invest when blood is flowing in the street." At this point in time, both Wall Street and Bond Street are sitting pretty, while blood is flowing in the Gold Street.  Therefore, according to Warren Buffet's theory it might be a good time to invest in Gold/Silver (Precious Metals). However, before making such an investment decision one must perform thorough analysis, so that his investment decisions are based on best possible market information.

In this regard, lets analyze the Gold & Silver market's Elliott Wave pattern on a short-term time frame. This analysis will help us identify near-term critical levels, and whether or not recent rally complies with the Elliott Wave requirements of a rally start phase.

Gold
On June 27, 2013 Gold prices bottomed at 1180 and have since risen above 1290. Following chart shows the Gold price action since June 27 bottom.

From an Elliott Wave perspective, Gold's rally from June 28 can be divided into a sequence of 1s and 2s, with each wave being sub-divided into 5 sub-waves. This rally structure suggests that current Gold rally has legs, and could mark something significant. 5-Waves rises mark market trend changes. Every rally starts with a 5-wave up and 3-waves down sequence. These building blocks combine to form larger degree 5-waves, and so on.  

Another important feature of Elliott Wave analysis is that it also defines the risk level for investors. Risk level for Gold right now is 1180. A decline below 1180 would negate the possibility of a long-term uptrend move. And therefore, should be used to manage risk.

Silver
As far as Silver is concerned, it is sporting a similar 1 2 pattern with each up-wave being sub-divided into 5-waves. As mentioned above 5-waves are a sign that trend has changed from down to up, and that we should expect continued upside for Silver.

Critical level for Silver investors should be 18.00. A decline below 18.00 would suggest that silver has further decline left before the bear market comes to an end.

Conclusion
From Gold & Silver's near-term Elliott Wave analysis, it is highly likely that both precious metals have bottomed in the near term. And we should expect further gains. However, if the critical levels are broken, it would suggest that decline has not ended yet and we should wait for a better entry point. In the future posts, we will perform detailed analysis on Gold at different time-frames. This will help us in better understanding the nature of upcoming rise and will hopefully enlighten readers to make better educated decisions. Please review previous post of details of upcoming Gold analysis. If you want any special analysis, please leave comments below.

Gold Analysis Marathon

In July we will be analyzing Gold from many different perspectives. This a an opportune time to perform this analysis because Gold market is approaching an area, where it might be at a long-term buy point. Detailed analysis will uncover various different aspects of Gold price movement in the recent past. And it will help readers to make an educated investment decision.

Following avenues will be used to analyze Gold and Silver:

1- Elliott Wave analysis: Short-Term, Medium Term and Long Term
2- Fibonacci support analysis
3- Sentiment analysis
4- Proprietary Support/Resistance Analysis
5- Fundamental Analysis
6- Confirmation signals
7- IPM Model Analysis for Gold: Weekly and Daily time frame
8- Conclusion

Gold analysis will be published in July and August, twice a week. Following order will be used to publish Gold analysis:

1- Short-term Elliott Wave analysis of Gold and Silver (2 weeks)
2- Medium-Term Elliott Wave Analysis of Gold: Encompass market action since September 2011 high - ~year data
3- Medium-Term Elliott Wave Analysis of Gold: Fib analysis to understand potential correction's end areas
4- Medium-Term Elliott Wave Analysis of Silver: Encompass market action since September 2011 high - ~year data
5- Medium-Term Elliott Wave Analysis of Silver: Fib analysis to understand potential correction's end areas

6- Long Term Elliott Wave Analysis of Gold: Encompass data from 2000 to 2013

7- Very Long Term Elliott Wave Analysis of Gold: Encompass data from 1970 to 2013

8- Fib ratio analysis for Gold: 2000 to 2013

9- Long Term Elliott Wave Analysis of Silver: Encompass data from 2000 to 2013

10- Very Long Term Elliott Wave Analysis of Silver: Encompass data from 1970 to 2013

11- 8- Fib ratio analysis for Silver: 2000 to 2013

12- Conclusion of Elliott Wave analysis based on both Gold and Silver

13- Sentiment analysis for both Gold and Silver 

14- Reconcile E/W analysis with Sentiment data to allocate proper count

15- Fundamental Analysis of Gold: Bond, Stocks, US Dollar and Gold

16- Fundamental analysis of Gold/Silver: Physical buying, global uncertainty etc

17- Proprietary Support/Resistance measures for Gold 

18- Proprietary Support/Resistance measures for Silver

19- Confirmation Signals

20- Gold IPM Model - Daily/Weekly (proprietary): Will only be published in the e-booklet and will not be published on the blog. Usage of IPM Model for Gold analysis is an innovation, which will be introduced specifically for this analysis.

21- Conclusion

As you can see, the above analysis is very detailed and will require a lot of time to be completed. As a matter of fact, at a rate of 2 articles per week it could take up to 10 weeks to complete. This means that conclusion will be written by early-October. At the end of these articles, we will compile these into an e-booklet.

Although we understand that timely dispersion of analytic information is critical for a timely decision, it requires extra effort to complete this project in less than 10 weeks. I am open to working extra, if readers are willing to support this project via Indiegogo. Details of this project will be discussed soon. 

Market Analysis - Ben's Words & The Rally Top?

Ben Bernanke's words have stoked a very nice rally. Futures are up by more than 100 points. And the assumption is back that FED will keep on printing. Interesting thing to note about yesterday's press conference is that it came on the same day as the scheduled release of FED's meeting minutes. These minutes showed a divided FED over continued money printing operations. In hindsight, it seems like the Federal Reserves chairman was worried about market's reaction to FED's minutes, and therefore, he held a press conference to mollify the market impact.

So far it seems like he has been successful in keeping the markets afloat. But a very interesting Elliott Wave development has taken place as a result of this press conference and the subsequent rally in stock futures.

Following chart shows the Elliott Wave count of current wave 2 rally. Please note that longer term wave analysis was presented yesterday.

Above chart shows that current rally has taken a 3-wave form, which suggests that it has been a corrective wave. If one looks closely at the wave count, it becomes apparent that yesterday we needed one more spike to complete the last 5th wave. We got this spike from today's rally. So in essence, Elliott Wave form is complete as far as 2nd wave is concerned.

At the same time, we are in the price range where there are multiple price and fib relationships to provide stiff resistance. For example:

1. Wave A of 2 = Wave C of 2 at 1666
2. Wave 2 = 78.6% of 1 at 1657
3. Last high = 1686

Therefore, if the market wants to top out, it should top out soon - below 1686. It is possible that today's gap open is sold and then the market starts its decline.

On the other hand, we have recently received optimistic sentiment readings which are suggesting that optimism is back and with a vengeance. Unlike 2nd half of July, when pessimism was prevalent, we are now near the other extreme. This kind of rapid increase in optimism is typically attributed to the end of Wave 2 rallies because the primary purpose of 2nd waves is to suck in remaining longs before market starts another decline phase. Hence, it will be interesting to analyze market's performance over the next few days, especially as we deal with the IPM Model Turn date.

Initial confirmation of the top will come on a break below 1650 on a closing basis.

Note: In the last update, it was mentioned that we will be writing about Gold. I will be outlining the multiple articles that I intend to write about Gold over the next few weeks. But the bottom line is that Gold seems to be at a major inflection point, and today's rally might be the first sign in this regard. The goal is to write 10-12 articles on Gold, analyzing Gold from fundamental, Elliott Wave, Sentiment and long-term technical perspectives. And then to issue a white paper on Gold as Gold might be the investment for the next several years.

Note: IPM Model has been a very informative tool for market timing. If interested in IPM Model Subscription, please fill out the form below. Model Performance

SP500 Elliott Wave Analysis

Markets have nicely rallied over the last 2 weeks. This rally was predicted in advance by the IPM Model. Now the question is: How far will this rally go? Since there are several ways to perform this analysis including sentiment & Elliott Waves, UST team has developed a propreitary Market Matrix tool to analyze markets under different conditions.

One important component of the Market Matrix is Elliott Wave analysis. Current Elliott Wave analysis of SP500 suggests that we are close to a top, and that current rally should only be treated as a counter trend bounce.

Following chart shows a "Leading Expanding Diagonal" decline pattern. Leading diagonal is a pattern in which market declines in a 5-wave manner, but wave 4 overlaps wave 2. Normally this overlap is a violation of Elliott Wave principals. However, overlapping is possible is rare circumstances i.e. during leading or ending diagonals. Leading diagonals, as the name suggests, occur at the start of a decline phase. And like ending diagonals, these patterns become more valid when majority of market analysts are not looking-out for them.

Some interesting observations regarding current 5-wave decline are:

1- Market top in May occured within weekly IPM Model's Turn window
2- Waves 1-3 = Wave 5
3- Leading diagonal count is not proposed by any prominent elliott wave analyst.
4- Leading diagonal would mark the start of the decline, as market had rallied from November 2012 to May 2012.

The above observations support the basic requirements of a leading diagonal pattern.

However, as we all know that nature of any market can only be confirmed after analyzing the counter-trend move. If current counter-trend move takes on a 3-wave form, it would suggest that primary trend is down. On the other hand, if the counter-trend rally complete a 5-wave rise pattern, it would suggest that previous decline was only correction (corrective triangle) and primary trend is still up.

So far SP500's 2 week rally has taken on a 3-wave (zig-zag) pattern (shown above). This pattern is typical for 2nd wave rises. In terms of Fib relationships, 2nd waves typically retrace 50% to 78.6% of 1st wave declines. In current case, 78.6% retracement will be completed at 1658 level (shown below).

Therefore, there is a high probability that market might be very close to a top. However, it should be noted that Fibonnaci areas are only potential top areas for counter-trend rallies. It cannot be assumed that if the SP500 rises above 1657, it will surely make new highs. In fact, as long as SP500 is below May 2013 highs, there is a high possibility of current rally being a counter-trend rally.

Please note that Elliott Wave analysis is just one aspect of Market Matrix. When Elliott Wave analysis is performed in conjunction with the IPM Model turn data, Sentiment, Trend analysis, Technical indicators, Proprietary models and supporting markets, one gets a high probability count. IPM Model update has already been emailed to subscribers on Sunday, which details out high probability turn window.

Summary:
1- Wave 1 down complete (Leading Diagonal). Wave 2 in process.
2- Count will be invalidated on a rise above 1687
3- Alternative count (Low Probability): Market completed a 4rth wave triangle in June

In the next update, we will analyze Global Stock Market Index to understand its Elliott Wave count to further underatnd the overall global stock market structure. Furthermore, in July we will be publishing a series of special reports on Gold.

Note: IPM Model has been a very informative tool for market timing. If interested in IPM Model Subscription, please fill out the form below. Model Performance

IPM Model Update - July 7, 2013

Latest IPM Model Update has been e-mailed to subscribers


Excerpts from Current Report:

Introduction

In the last update it was stated that “based on analysis market should continue its decline for few more days and then put in an intermediate bottom. This bottom will give way to a sharp rebound.” Last IPM Model Turn window started on Monday – June 24, 2013 and the market also bottomed on Monday – June 24, 2013. Market then rallied from 1560 to 1630 (5%) in less than 2 weeks. Both of these developments i.e. market bottom and a sharp rally was predicted in the last IPM Model update.

This accuracy of IPM Model suggests that we should keep an eye on the IPM Model for clues for future market action, especially since earnings season is supposed to start next week.

Analysis

Latest IPM model re-run suggests that IPM Model turn window is scheduled for July XX, 2013 (+/- 4 days), and according to statistical calculations it should mark a market X. 

Based on above data, one can assume that we are in for a rough July. This is because ... 

At this point, it is worth mentioning that the Global Stock Market index has also completed its 8/4 test to the down side on a daily timeframe. Daily “8/4 Test Completion” means that ... Moreover, a decline in the U.S. markets below XXXX (SP500) will trigger the 8/4 Test Sell signal. In this way, U.S. indices will enter a bona-fide downtrend along with Global indices. 

 ...  Overall, a breakdown in the bond market can be catastrophic for the economy. It will choke-off credit and dampen economic activity, which could result in even lower demand for U.S. bonds and trigger Europe like Sovereign Debt Crisis situation.

To summarize  ...