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Przemyslaw Radomski, CFA
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Przemyslaw Radomski, CFA (PR) is a precious metals investor and analyst who takes advantage of the emotionality on the markets, and invites you to do the same. His company, Sunshine Profits, publishes analytical software that anyone can use in order to get an accurate and unbiased view on the... More
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  • Sunshine Profits: USD & Euro Indices Correct – What About Gold?

    USD & Euro Indices Correct - What About Gold?

    Based on the November 15th, 2013 Premium Update. Visit our archives for more gold & silver articles.

    In our most recent article on gold, USD and Euro Indices we wrote that the outlook for the yellow metal was bearish just as the outlook for the Euro Index and just as it was bullish for the USD Index. At this time - since all of the above-mentioned markets moved in the opposite way - you might be wondering if we are sticking to the above analysis. In the medium-term, we do, but not in the short run. In fact, earlier this week we told our subscribers to cash in the profits from the short positions as the bullish correction was quite likely to be seen.

    So, have metals bottomed? Not necessarily. Let's take a look at the following charts and discuss them. After we describe them, you'll see, why it's not a sure bet (charts courtesy of stockcharts.com.) We'll start with the USD Index.

    (click to enlarge)

    The situation in the long-term chart hasn't changed much recently and what we wrote in our last article is still up-to-date today.

    (...) the long-term breakout above the declining long-term support line was not invalidated. Additionally, the USD Index reversed right in the middle of our target area. Therefore, from this perspective, it seems that the downward move - if it's not already over - will be quite limited because the long-term support line will likely stop any further declines.

    Now, let's examine the weekly chart.

    (click to enlarge)

    Looking at the above chart we see that after a sharp rally, which invalidated the move below the lower support line and the breakdown below the medium-term support line (a bold black line), the USD Index almost reached the previously-broken rising medium-term support line created by the August 2011 and January 2013 lows.

    The invalidation of the breakdown is itself a bullish signal and it seems that we will still see more of its impact in the coming weeks.

    Although we saw a correction in recent days, it is still shallow, which is a bullish signal for the short term - every now and then markets need to take a break from rallying - none of them can move in one direction all the time.

    Let's check the short-term outlook.

    (click to enlarge)

    Quoting our previous article:

    (…) the USD Index rallied in the previous week and moved above the previously-broken resistance line based on the June low. Additionally, (…) the U.S. dollar broke above the short-term resistance line based on the July and September highs. Looking at the above chart we see that both breakouts were confirmed.

    On the above chart we clearly see that after the sharp late-October-November rally, the USD Index gave up some of the gains and corrected earlier growth in recent days. Despite this drop, the U.S. dollar still remains above the previously-broken resistance lines. Please note that as long as it stays above the short-term resistance line (marked with red), the situation will remain bullish.

    Let's now take a look at the Euro Index.

    (click to enlarge)

    Looking at the above chart we see that the October - November decline pushed the European currency to its lowest level since mid-September. At the beginning of the week the Euro Index bounced off the last week's low and continued its upward move in the following days. In this way, the European currency almost reached the previously-broken 135 level. In spite of this fact, this week's upswing didn't change anything, because it didn't even erase half of the recent decline. Taking this fact into account, it seems that further deterioration is quite likely in the coming week.

    To see the current situation more clearly, let's zoom in on our picture and move on to the medium-term chart.

    (click to enlarge)

    From the medium-term point of view, the situation is a mirror image of what we saw on the short-term USD Index chart. After the Euro Index dropped below its rising support line and erased 50% of its entire July - October rally, we saw a relatively small move back up, which took the European currency to the 38.2% Fibonacci retracement level based on the October - November decline.

    As mentioned earlier, although we've seen some improvement in the recent days, the Euro Index still remains below the level of 135. Additionally, the breakdown below the rising support line hasn't been invalidated.

    Please note that the current correction is still shallow, which means that the decline can continue. Even, if we see a move higher, to the 61.8% retracement level, the euro will still remain in a downtrend. From this point of view, the situation is bearish. But if we see a move below 131.56 the bearish implications will be even stronger. On a very short-term basis, though, we can't rule out more strength in the European currency.

    All in all, we could see further improvement in the Euro Index and weakness in the USD Index on a short-term basis. However, it seems that the bearish trend will remain in place as long as the euro remains below its short-term resistance line and the dollar stays above its short-term support line. Therefore, currently, the implications for the precious metal market are bullish but are likely to become bearish shortly. Please take a look at our Correlation Matrix for the confirmation of the above.

    (click to enlarge)

    Correlations seem to have moved back to their default values in the case of the USD Index and the precious metals sector. This means that it's no wonder that metals and miners are correcting - the reason could simply be the correction in the USD Index. The latter had quite a volatile run up in the recent weeks and - as mentioned earlier in today's update - was something that one could have expected. Just as the trend remains up in case of the USD Index, the trend remains down in case of the precious metals sector.

    Meanwhile, the correlation coefficients between PMs and the general stock market are rather insignificant on a short-term basis (with the exception of the mining stocks sector, which seems to be waiting for a decline in stocks in order to decline itself), so we can't tell much about the possible impact of the current outlook for stocks for the prices of gold and silver.

    Overall, with bullish implications from the currency sector (despite a very short-term correction that was likely triggered by the correction in currencies) and the unclear impact of the stock market, the precious metals sector seems to be set to decline once again after a quick move up.

    What about gold itself? Let's take a look.

    (click to enlarge)

    Quoting our previous Premium Update:

    Looking at the above chart we see that the situation hasn't changed much from the long-term perspective. The medium-term outlook was bearish as gold had already broken below the long-term rising support line and the recent decline naturally hasn't made the situation look bullish.

    The medium-term trend remains down and from this perspective it seems that another local top has formed. Therefore, further deterioration is quite likely, if not immediately, then at least soon.

    Gold is trading very close to the 38.2% Fibonacci retracement level ($1,285) based on the entire bull market, and just a bit more weakness might trigger a significant sell-off if the breakdown is confirmed.

    Summing up, while gold could move higher in the following days - triggered by strength in the Euro Index and weakness in the USD Index - it will likely be just a counter trend move that will be followed by further declines.

    To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

    Thank you for reading. Have a great and profitable week!

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Price Prediction Website - SunshineProfits.com

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

    Nov 18 12:06 PM | Link | Comment!
  • Sunshine Profits: Plunging Euro, Rising Dollar And Their Impact On Gold's Future Moves

    Plunging Euro, Rising Dollar and Their Impact on Gold's Future Moves

    At the end of October, in our essay on dollar and the general stock market we discussed the USD and S&P 500's implications for the precious metals market. After that, in our essay on gold price in November we examined the long- and the-short-term outlook for gold. And finally, in our Wednesday s essay we discussed the situation in the Euro Index and mining stocks. Back then, we wrote that the bearish outlook for the Euro Index was also bearish for gold, silver and mining stocks.

    After that essay was published, gold dropped below an important support level at $1,300. Please note that the yellow metal has been trading below $1,300 since Friday and has fallen about 3% in the last four sessions as data on strong U.S. economic and jobs growth boosted speculation that the Federal Reserve will move to reduce its bond purchases and remove a long-running source of support from the gold market. Taking the above into account, investors are probably wondering whether the final bottom of the recent corrective move is already in or not. Will gold test the strength of the October low in the coming days?

    Before we try to answer this question, we'll examine the US Dollar Index and the Euro Index (from many perspectives) once again to see if there's anything on the horizon that could drive the price of gold higher or lower in the near future. After that, we'll check what the current situation in the gold market is. We'll start with the long-term USD Index chart (charts courtesy by stockcharts.com).

    (click to enlarge)

    On the above chart, we see that the long-term breakout above the declining long-term support line was not invalidated. Additionally, the USD Index reversed right in the middle of our target area. Therefore, from this perspective, it seems that the downward move will be quite limited - if it's not already over - because the long-term support line will likely stop any further declines.

    Now, let's examine the weekly chart.

    (click to enlarge)

    Looking at the above chart, we clearly see that the situation has improved. In our last Premium Update published in October we wrote that the USD Index had moved higher and the move below the lower support line had already been invalidated. The invalidation by itself is a bullish signal. Back then, we assumed that if we saw a bold move back above the 80 level, the breakdown would be fully invalidated and the implications would be clearly bullish for the weeks to come.

    On the above chart, we see that the U.S. dollar extended gains in the previous week (and earlier this week), which was in perfect tune with our initial scenario. In this way, the breakdown below the medium-term support line based on the February 2012, September 2012 and January 2013 lows (bold black line) was also invalidated, which is a bullish signal for the medium term.

    Let's check the short-term outlook.

    (click to enlarge)

    On the above chart, we see that the price bounced off the 2013 low which we saw in early February. Those who have been following our analyses for some time now are probably not surprised to see that the turnaround happened at the cyclical turning point.

    Quoting our essay on the dollar and general stock market from Oct. 25, 2013:

    (…) there is a cyclical turning point just around the corner. Therefore, we could see a reversal of the current bearish tendency in coming weeks. This can lead to a bigger pullback, especially when we take into account the fact that the USD Index remains in a short-term downtrend.

    On the daily chart, we see that USD Index rallied last week and moved above the previously-broken resistance line based on the June low. Additionally, the U.S. dollar broke above the short-term resistance line based on the July and September highs. Looking at the above chart, we see that both breakouts were confirmed.

    Although yesterday the U.S. currency declined slightly, from this point of view the outlook for the USD Index is still bullish.

    Let's now take a look at the Euro Index.

    (click to enlarge)

    Quoting our Wednesday s essay on the Euro Index and mining stocks:

    Looking at the above chart we see that the long-term downtrend remains in place. Additionally, it seems that the short-term uptrend might already be over. In the previous week, the RSI bounced off the 70 level, which was a bearish sign. At the same time the Euro Index moved very close to the strong resistance created by the declining resistance line, but it didn't break above it. This show of weakness in combination with the position of the RSI triggered a heavy decline and the European currency dropped below the 135 level. Earlier this week, the euro extended declines and it seems that the downward move is not limited at the moment.

    At this point, we would like to emphasize one important fact: the previous tops (in 2008 and then in 2011) were followed by major declines in the precious metals sector. If history repeats itself we may see similar price action in this situation.

    On Thursday, we saw further deterioration in the European currency and the euro dropped to its lowest level since mid-September. Although we saw some improvement in the recent days, the Euro Index still remains below the level of 135.

    To see the current situation more clearly, let's zoom in on our picture and move on to the medium-term chart.

    (click to enlarge)

    From the medium-term point of view, the situation is a mirror image of what we saw on the short-term USD Index chart. The euro moved below its rising support line and corrected afterwards without invalidating the breakdown. Please note that the Euro Index corrected 50% of its entire July - October rally, which means that it could pause before the rally continues. In fact, it already has by correcting to the upper Fibonacci retracement level. As mentioned earlier, although we've seen some improvement in the recent days, the Euro Index still remains below the level of 135. Additionally, the breakdown below the rising support line hasn't been invalidated.

    Please note that if we see a move below the lowest of the marked Fibonacci retracement levels, we'll have a much more bearish situation. It is already bearish now, but the implications will be stronger if a move below 131.56 is seen.

    Having discussed the current situation in the U.S. dollar and the European currency, let's see how it may translate into the precious metals market. Let's take a look at the Correlation Matrix.

    (click to enlarge)

    The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector (namely: gold correlations and silver correlations).

    At the end of October, we wrote that the values in the above table were getting back to their normal values, but that it was not fully clear if this was really the case, or it was just short-term price noise.

    Based on the most recent data, it seems that the negative correlation is back in case of the USD Index and the precious metals market. Consequently, the implications of the situation in the USD Index are not only bearish in the medium term, but also in the short term.

    Once we know what the current situation in the USD and Euro indices and its implications for precious metals, let's move on to gold's very long-term chart.

    (click to enlarge)

    Looking at the above chart, we see that the situation hasn't changed much from the long-term perspective. Before the beginning of the week, the medium-term outlook was bearish as gold had already broken below the long-term rising support line and last week's decline naturally didn't make the situation look bullish.

    The medium-term trend remains down and, from this perspective, it seems that another local top has formed. Therefore, further deterioration is quite likely, if not immediately, then at least soon.

    Before we summarize, let's take a look at the chart featuring gold's price from the non-USD perspective.

    (click to enlarge)

    Looking at the above chart, we see that although the non-USD gold price moved above its declining resistance line (an intra-day move) at the end of October, this improvement was only temporary. In the previous week, we saw a drop below this line and the breakout was invalidated, which by itself is a bearish signal for the short and medium term. Earlier this week, we saw further deterioration and the non-USD gold price declined once again.

    From this perspective, it seems that the recent correction was nothing more than a confirmation of a breakdown that we saw begin in mid-September. Therefore, the medium-term outlook remains bearish.

    Summing up, looking at the current situation in the Euro index, we could see further deterioration in the European currency and strength in the USD Index not only on a short-term basis, but also in the medium term. Although the euro rebounded in the recent days, it didn't trigger an upward move in gold, which confirms that the implications for the precious metal market are bearish. The medium-term outlook for gold remains bearish, and at this time the short-term outlook is bearish as well.

    To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

    Thank you for reading. Have a great and profitable week!

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Price Prediction Website - Sunshine Profits

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

    Nov 13 3:54 AM | Link | Comment!
  • Sunshine Profits: Was Consolidation In Mining Stocks A Sign Of Strength?

    Was Consolidation in Mining Stocks a Sign of Strength?

    Based on the November 8th, 2013 Premium Update. Visit our archives for more gold & silver articles.

    In our Wednesday s free essay we discussed the situation in the Euro Index and mining stocks. We wrote that the long-term downtrend in the Euro Index remains in place and that the short-term uptrend might already be over. We emphasized that, based on the precious metals correlations with the currency markets, the implications of the bearish outlook for the Euro Index are also bearish for gold, silver and mining stocks.

    This was further confirmed by the analysis of the miners themselves (not only had the HUI Index reached its declining medium-term resistance line, but the same had been the case with the gold-stocks-to-gold ratio). In today's article, we will further elaborate on the mining stock sector and discuss whether this week's consolidation is really a sign of strength.

    Let's start with the HUI Index chart - a proxy for gold stocks (charts courtesy of stockcharts.com.)

    (click to enlarge)

    From the long-term point of view, nothing's changed in the past few days. The trend was down on Wednesday and the same is the case right now. We haven't seen any breakout above the declining resistance line and we can expect big moves to the downside in the days or weeks ahead.

    In last week's Premium Update we mentioned that there were some bullish indications on the chart featuring junior mining stocks.

    (click to enlarge)

    We wrote the following:

    Although the juniors sector moved above the declining resistance line, we think that it's still too early to say that the breakout has been truly confirmed - especially when we take into account the position of the RSI.

    Please note that the last two times when the indicator reached these levels, major medium-term tops were formed. Therefore, we would need to see a verification of the breakout first to view it as an important medium-term signal. This would be the case in any other breakout as well, but in case of the above chart, waiting for a verification seems particularly justified because we have already seen a false breakout at the beginning of this year - one which was followed by a significant decline in the entire precious metals sector.

    Since that time, juniors have declined and they look like they are about to invalidate the previous breakout, which would, naturally, have bearish medium-term consequences.

    (click to enlarge)

    From the short-term point of view, it seems that we just saw or are still seeing a pause within a short-term decline (which could become a medium-term decline). The last time when miners rallied was on Wednesday and that move materialized on low volume, which was a bearish indication. Thursday's decline took place on higher volume, which suggests that this is the real direction in which the market is heading.

    One might ask if the consolidation is a sign of strength of the precious metals sector. To estimate that, let's see what would've been likely to happen if there were no strong trends present. This is where True Seasonal patterns come into play.

    (click to enlarge)

    It turns out that miners "should have" rallied in the very first part of November, and all they managed to do was to pause after a decline. The most recent consolidation that we see on the GDX ETF chart is therefore a sign of weakness, not strength. Furthermore, it seems that the decline may continue shortly as True Seasonals indicate we are likely to see a decline in a few days. On a side note, the True Seasonals tool correctly predicted the rally in the stock market at the beginning of the month and the local top that has (most likely) just been formed. You can read more here.

    Summing up, the outlook for mining stocks is similar to the outlook for gold and silver - it remains bearish for the short and medium term. We can't rule out a few days of strength, but it doesn't seem that a rally would be a sustainable development

    Thank you for reading. Have a great weekend and profitable week!

    Przemyslaw Radomski, CFA

    Founder, Editor-in-chief

    Gold Price Prediction Website - SunshineProfits.com

    * * * * *

    About Sunshine Profits

    Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

    Disclaimer

    All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

    Nov 08 11:44 AM | Link | Comment!
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