In an interview today with Equity Management Academy CEO, Patrick MontesDeOca, we talked about the accuracy of our 2017 yearly report we published on Seeking Alpha for gold, and the significant profit potential we’ve identified right now in the gold, silver and soybean markets.
October 2017 Gold Report: Aggressive Gold Plays Paid Off
On October 10, 2017, I published a gold report in which I called two aggressive plays for bullish gold. The calls were based on the long-term Variable Changing Price Momentum Indicator (VC PMI) analysis, which we used to identify prospectively the supply and demand levels for gold for the year 2018. As we come to almost the end of this cycle that began in September 2018, I discussed with MontesDeOca the results that the VC PMI produced in anticipating annual supply and demand levels for gold.
When we published our annual report for gold on September 28, 2017, gold closed at $1288. The market average price for gold based on the VC PMI for the year was $1264.
“The market closing above that price was bullish,” MontesDeOca recalled, “anticipating targets of the extreme above the mean of $1386 as the sell 1 (S1) level and $1484 as the sell 2 (S2) level.”
As always, however, the VC PMI also told you that based on the average price of $1264, if the market came down below, it would negate this bullish yearly trend momentum to neutral. The report stated, “If that happens, you should cover any bearish positions, since the sentiment will change to levels of $1166 to $1054. A second confirmation of trading below $1264 would activate buy signals at $1166 to $1044.” It also told you that if the market were to come down below those levels, you should be alert to the possibility of lower prices.
If we look at a long-term chart for gold, we see the range of $1045 as the low made on November 30, 2015, and a rally to a high of $1377.50 on July 4, 2016.
“This was a phenomenal move that took place in about six months,” MontesDeOca recalled. “We saw the price of gold exceed a move up of $300 an ounce during this time.”
Since then we’ve been trading pretty much from a low on December 5, 2016 of $1157 or $1158, before gold rallied to a high that was made on September 4, 2017, of $1331. The market rallied to this price from July 10, 2017 after hitting a low of $1204.
“I just want you to note that this is exactly the 360-degree cycle that we are looking at in the price of gold for the month of August as we move forward through the rest of the year,” MontesDeOca said. “The low of July 7, 2017 was $1204 and the market rallied to a high of $1362 by September 4, 2017. This was an unusual move that gave us a substantial gain in the price of gold in a short period of time. We are looking at a $58 move over 30 days. These types of moves do not occur frequently.”
The report we published forecast a similar move. The levels that I published based on the VC PMI were a high of $1386, and the highs after this report that were made at $1365.50 on January 22, $1364.50 on February 2, 2018, and the last try to reach the high of $1386 was a high of $1369.40 on April 9, 2018.
“Even at this price,” MontesdeOca said, “we gave you a reasonable profit for you to be able to lock it in, since the recommendation was made to lock in profits on September 28, when gold was at $1288. That is about an $80 move in gold over three months. We gave you enough room for you to lock in these profits accordingly.”
In using the 50-day moving average, the market broke down on May 7 and it was never able to get back up until we saw a real take-down that occurred during the week of June 14. The market broke down below the 50-day moving average and reverted down through the average price of $1264, activating the buy 1 (B1) level of $1166, which was anticipated in our report.
On Friday, August 13, 2018, the market came down and activated the B1 buy signal at $1166. The low in gold was $1167.10, and met the criteria, if you use our 10% margin of error, confirming the reversion occurring to the B1 level.
“The VC PMI,” MontesDeOca explained, “in using the structure it provides, gives you a 90% probability of a reversion occurring from the B1 level and a 95% probability of a reversion occurring from a B2 level back to the average price of $1264.”
On Friday August 13, the low that day was $1167, and the market reverted back to $1191.80 that same day. It produced a weekly buy signal since it met the downside target of $1166, before reverting back up and closing at $1191/$1192.
In using the Fibonacci retracement from the high of April 16, 2018, of $1359, and using the recent low that we made Friday of $1167, we can begin to calculate the retracement levels that are developing as long as the price of gold holds these levels of $1167. We are going to use this level as the first measurement, unless the market violates these levels. It is probable that the market will hold and the market will revert back to the yearly moving average of $1264, which is the initial target that we have from the low levels that were made last week.
In applying the Fibonacci retracement, we get a 23.6% retracement to be at $1214.20. A 50% retracement happens to match exactly the VC PMI average price of $1264. The 61.8% retracement, which we call the golden ratio, is at $1292 or $1291.50.
“It is my estimation,” MontesDeOca said, “based on the VC PMI structure we use, that this is the main price target to be accomplished.”
Closing above $1291.50, we are looking at a 78.6% retracement at $1325.50. Closing above $1325.50, we are looking at the Fibonacci extension of 161.8%, the golden ratio again, at $1484.
“Based on the interpretation of the VC PMI,” MontesDeOca said, “even though we’ve seen this tremendous correction and take-down since June 14, the market is still very healthy and in an area of major demand. The VC PMI is still projecting the upper end of this Fibonacci extension to be around the $1400 levels and higher for gold the rest of 2018.”
The initial target once again over the coming week is $1264, which is within the yearly VC PMI outlook that was published on September 28 for the year, which for our analysis ends September 28, 2018. These numbers still hold and are valid until the new yearly VC PMI report is published for the September 28, 2018 to September 28, 2019, 360-degree targets. $1264 coincides with the 50-day moving average, in the vicinity of about $1278 or so.
“This area is the area of focus for gold over the near term,” MontesDeOca said.
Speculators Net Short Gold for First Time Since 2001!
If we look at the commitment of traders report, speculators have gone short for the first time since 2001. This is an unusual development.
"It’s an indication that we have the short side now in weak hands from these levels,” MontesDeOca said. “According to Sentiment Trader, in 27 years there have only been a few days with sentiment worse than Friday’s sentiment in precious metals.”
The sentiment for silver has collapsed, and the sentiment for the gold market, looking at the 24-year chart, also shows that sentiment has also collapsed.
“The combination of small speculators and central banks having the smallest short positions on record, and hedge funds the biggest short positions on record,” MontesDeOca said, “is an explosive combination for a reversion to occur.”
24-YEAR CHART: Gold Sentiment Has Also Collapsed!
Gold Market: Weekly Report
Based on our weekly report published on August 17, we are going to see what the price of gold can be expected to do next week based on the VC PMI automated algorithm. The average price is $1190. The 9-day moving average is at $1240. The market closing below the 9-day moving average of $1240 confirms that the trend coming into this week is still bearish. It also alerts you that if the price closes above $1240, it would negate this bearish short-term trend to neutral.
Since the average price of $1190 is identified for next week, based on the close of $1184, the gold market is coming into the week with a bearish price momentum. But the VC PMI also tells you that if we close above $1190 during this week, it would negate this bearish price momentum to neutral. A second close above $1190 would activate the extreme above the mean of the S1 level of $1214 and the S2 level of $1245.
The VC PMI also gives you the alternative; that if the price closes below $1190, on the second close below $1190, it would activate the B1 level of $1160 and the B2 level of $1136.
“The VC PMI automated algorithm gives you a structure to trade the relative implied volatility of a market,” MontesDeOca said, “with a structure that identifies the extremes above the mean with 90% to 95% confidence, as well as the extremes below the mean with 90% to 95% probability of success. When these signals are identified, reversion to the mean occurs 90% to 95% of the time and the price adjusts to its identified average price for the week. We use the VC PMI to trade, coach and teach individuals, institutions, and anyone who is interested in trading a concept that is not conventional wisdom to trade the markets more confidently and more effectively.”
Silver: Accumulate Long Positions From The Lows
Our VC PMI silver weekly report for next week indicates that the price of silver closed at $14.63. The market closed below $15.68, the 9-day moving average, means that there is a bearish trend momentum for the coming week. A close above the 9-day weekly moving average would negate this weekly bearish trend.
The average price that we identified for next week is $14.67, and the price closing a little lower that that means that we are still in a bearish price momentum for next week. If we close above $14.67, a second close above $14.67 will activate the S1 of $14.76 and the S2 of $14.89. Since we closed below $14.67, the levels of the extreme below the mean are still active at the B1 level of $14.54 and the B2 level of $14.45.
“We strongly recommend that you accumulate long positions from these levels at every opportunity,” MontesDeOca said. “If you go long from $14.45, use that level as a stop close only. Use it weekly on a good ‘til cancel order. Hold onto the positon from this level using a weekly stop. If the market runs up into the $14.76 to $14.89 level this week, we recommend you lock in some short-term profits as we begin to make higher price fractals on closes above the S2 level. If we close above the S2 level of $14.89, it begins to activate a higher fractal in price and turns this resistance into support for the next price fractal.”
Soybeans: Special Situation
The soybean has come down to levels that match 2009, and the VC PMI automated algorithm is suggesting that we may be approaching a long-term bottom in the market. MontesDeOca and I discussed the supply and demand factors that are affecting the market, as well as recommendations about an instrument that traders can use to hold on to a position in soybeans without the risk of a margin call.
The soybean market closing above the 9-day weekly moving average of $8.81 is bullish, and confirms that we are coming into this week with a bullish trend momentum.
“We use the $8.81 as a stop level or a risk level, short term, for if you want to have a protective stop,” MontesDeOca said.
The average price coming into next week is $8.81. The market closing above the average price activates the S1 level of $9.11 and the S2 level of $9.29.
“We recommend that if the market reaches these levels this week,” MonresDeOca said, “you should lock in some profits and take some profits off the table.”
If soybeans come down below $8.81, a second close below $8.81, activates the B1 level of $8.62 and the B2 level of $8.33. At which point, the VC PMI recommends that you cover any short positions and reverse and go long. Use $8.33 as a weekly stop on a close only, good ‘til cancel.
“For those investors and traders who are interested in trading in the inflation markets, the soybean and grain markets offer tremendous opportunity as we move through the rest of this year,” MontesDeOca said. “Based on the VC PMI, we have found an instrument that you can trade and take advantage of without margin, called the Teucrium SOYB fund, which is an instrument that trades much like an ETF, in that the price is dollars per share. There is no margin requirement, as there would be with futures contracts. You can buy a position and hold on to it as long as you wish, until you meet your target or objective.”
Featuring: The Teucrium Soybean Fund
The Fund’s sponsor is Teucrium Trading, LLC (the “Sponsor”). The investment objective of the Fund is to have the daily changes in percentage terms of the Fund’s NAV per Share reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three soybean futures contracts.
Friday, SOYB closed at $16.66. The market closing above the 9-week moving average of $16.31 means we are coming into this week with a bullish trend momentum. If you want to use at a short-term protective stop, use $16.31. A close below $16.31 would neutralize the bullish short-term trend to neutral.
Since we have identified the average SOYB price of $16.39, the market closing above the average, means we are coming into this week with a bullish price momentum. The VC PMI also tells you that if we close below $16.39, this bullish price momentum would be negated to neutral.
“This is the mean or average price,” MontesDeOca said. “This structure gives you the opportunity to identify the extremes above and below the mean.”
Since we are coming into this week with a bullish price momentum, we recommend that you exit long positions if the SOYB fund price reaches the S1 level of $16.96 or the S2 level of $17.27. If the market comes down below $16.39, with a second close below that level, then it activates the B1 level of $16.08 and the B2 level of $15.51. The VC PMI tells you to cover any shorts on corrections to these price levels, and to reverse and go long at these levels. If you are looking to enter the SOYB fund market, the best place to enter is at the B1 or B2 levels when activated, and use the $15.51 level as your stop, or if the market trades through $16.08 and closes above it, trail your stop from that level.
“One of the most outstanding aspects of the VC PMI is the ability to create a structure based on the average price, which then identifies specific targets for you to enter and exit the market at,” MontesDeOca said. “Even though there is no system that is 100% correct, I have found that the VC PMI gives you probability levels that exceed conventional wisdom and almost any other trading system. I realize that 90% and 95% probabilities sound unrealistic or too good to be true, but we have found that the automation works by itself, very successfully. It is currently running on the TradeStation platform and you can check out the performance at EMA2tradelivesignals.com. Those interested in complete automation, can reach out to me at EMA or call our main desk, where we have people to attend to your needs right away.”
In my discussion with MontesDeOca, I wanted to focus on the action in the gold and silver markets, as we look at the rest of the year 2018. We are finding a tremendous opportunity at these levels in gold and silver created by this take-down that has driven the prices to extreme prices below the mean on a short to intermediate term basis. We are also looking at inflationary markets, such as soybeans, that are indicating a strong profit potential going forward for investors and traders.
Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.
Disclosure: I am/we are long JNUG, USLV, GLD, GDXJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.