An interesting situation and a possible spread trade is forming in the precious metals. Let's begin with Gold.
Gold looks to me as being set for a short-term move to the downside. Please look at the picture below.
The first thing to notice is the seasonal chart, courtesy of Larry Williams (blue, panel below the chart). It is showing that during this time of the year Gold is inclined to go down.
Next is the green line above the chart. It shows the On Balance Volume indicator and is teaching us a trading lesson here. This situation of having double divergence is described into the pieces and it is something you can see from time to time on the charts.
Both divergences are indicated on the chart. The green arrow is showing the bullish divergence. The bearish divergence is marked with a red arrow. Please note the bottoms included in both divergences
I am putting more weight on the bearish divergence because it is the more recent one. It is based on the last two bottoms while the bullish one covers an older bottom. Also, it looks like the bullish divergence had its chance to play out but the market failed to follow it.
All this makes me search for a short signal this week.
From a price action perspective, Thursday's bar is showing strength. Friday's bar gapped down and closed as inside day. The gap was not closed, and the market is still below the important level at $1499.
If on Monday, Gold breaks below Thursday's low I expect it to move towards the 1468-1457 zone. This is valid only if the above-mentioned gap is not filled.
Platinum's bullish setup was explained in “The week of the short-term COT. AUD, USD, Soybean Meal, Platinum, 2 YR T-Notes, SP500”.
As you can see from the picture above Platinum made a new low which is only a little bit higher than the previous one. But accumulation measured by On Balance Volume is making a significantly higher bottom (green arrow). That increases the probability of an up move towards the 921-932 target zone.
So far I cannot find a good entry signal. The longer it takes for this move to begin the less probable it becomes. That is why we have to be even more selective when choosing an entry signal.
My short-term COT pattern appeared this week alerting for a potential down move in Soybeans. What also is important to mention is the net position of the small speculators. The data shows that they are extremely bullish. This is a sign of a market top.
It is important to show one more thing on the chart above. It is the failed attempt to break above June's top (944 4/8). On Monday the market pushed above this top but did not stay there and quickly returned below it.
On Friday, the market failed to show strength by not breaking above Thursday's high. Thus the week ended with an inside bar.
Now that inside bar suggests that Monday should begin with a move towards its high at 938 4/8. I'll be looking for the final distribution to happen somewhere around that level. Then we can expect the move down to begin.
I still hold that S&P500 long position. It reached the first target, but I decided to use an extended one. The reason for this is the good start of the earnings season and because the market looks strong. Earnings expectations were set very low for this season. That makes it easy for the actual earnings to beat the expectations.
I am moving my stop higher and higher, as you can see from the picture.
Monday most probably will start with a move down aiming for Friday's low. There I expect the market to find support and continue the uptrend.
Founder of Piece of Trading
Trades mentioned here are either taken or will be taken by the author if the right conditions appear. They are NOT recommendations nor any of this constitute investment advice. Please read the Risk Disclaimer
Seasonal indicators courtesy of Larry Williams, ireallytrade.com. Charts made with TradeStation®. tradestation.com
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