By Randy Johnson
Future Buttonwood Dates:
November 6-7, 11, 19, 23-26
December 3, 10
November 1-2, 7
Weekly II Dates:
Current outlook for November/Early December
While price did not drop as far as the 50% retracement level on GLD our target for GDX 48-49 was hit as we reached 45 at the lows. We did purchase metal on November 2 as price dropped sharply through the .38 retracement level.
Our Major support remains the green downtrend line from 2011. If we’ve not made the lows, then the 50 and 61% Fib levels on the chart also offer support. The bottom of the chart has the medium term cycles and the next turn point is January 2013. The rotations for December will decide on whether a high or low point takes place. We say that because the outlook into December has mixed indications. We can build a case for either side with about equal weight, each having their plus and minus. From a seasonal standpoint December has had 8 of the last 11 years as up so it’s something to keep in mind. On the inverse, last year December dropped 180 dollars for the month.
We are going to present two scenarios and let price pick the most valid.
Let’s take a look at where price may go from here.
The pattern for 2012
The powerful rally in August had a turn at each buttonwood date but each date produced only a pullback of 3to 4 days as the power of the rally produced a Gann 89 day peak to peak cycle. The September pullback so far has played out. The only date of significance since the high on the 22nd was the October 27th date. We were looking for a low then but an inversion occurred and signaled the date as another bounce and turned out to be the high of the bounce and price took another leg down. Price got very close to some important support lines I’m watching near the 42-44 area.
All of the GDX weekly II dates have been producing high points on the chart pattern. The next turn points of Nov 19th look to be putting in a low with a bounce.
The November 19th date is a MINOR turn point signal and thus there are two scenarios to watch for. The first is this might just be a bounce this week with another low point due on Dec 3rd that would favor a higher December and be in line with the seasonal average which has been up 8 of the last 11 years.
The 2nd scenario would be for price to continue higher from here into Dec 3rd and potentially turn down from there. That scenario would actually play with the GLD cycles that call for a turn in January of 2013.
So depending on whether there’s a low or high on Dec 3rd should provide guidance.
In either case the real key is going to be whether GDX can now get above its key resistance level in the 48-52 area where we’ve highlighted in Green the key price zone and channel lines we need to overcome. That’s really the bottom line. We can plug in the turn dates, but its price that has to perform. If price is going higher in 2013 it has to overcome this bull/bear line first.
Bull flags are usually continuation patterns and the odds usually do not favor price dropping out of the “bull flag” channel as it did with the PM stocks.
Interestingly, the metals are starting to show what looks like a bull flag pattern quite a time after the PM stocks developed theirs.
Because of the strong nature of the decline, we must be alert that after late November/very early December price may fall again. One clue will be to see what price does at HUI 450 where that lower channel line resides. If price can’t get above there, the Dec 3rd will most likely provide the low.
Another chart I keep showing is SLV which also fits the scenario of GLD cycles that project a January low.
One very important aspect the large multi month triangle chart pattern that is not being discussed by newsletter writers is that to validate the breakout of price from the long term triangle correction pattern, price SHOULD retest the upper declining trend line. As far as I can see that has not happened. This brings us again to the scenario of the possibility of lower prices. The one caveat here is that the strongest trends do not have enough energy to retest the downtrend lines. Since its silver we’re talking about, we do have to take that into consideration as well.
Newmont and GoldCorp have chart patterns that might be following an Elliot pattern that projects and early 2013 low as well.
Goldcorp is showing a similar pattern where we might be able to count out a “5 wave C” occurring. It also opens the potential that a bounce once wave three is complete could lead to a mid December higher and then the final low in early 2013. We do have a DAILY Buttonwood date on Dec 10th . Perhaps that’s where the wave 4 bounce could occur.
GOLD MINER’s BULLISH PERCENTAGE
Gold miner share sentiment is nowhere near extreme bearish despite the recent deep price drop. So, theoretically sentiment could get much more bearish. However, the premium to net asset value measured by Sprott’s fund PSLV is a sentiment indicator that is at very low levels. The lack of bearishness on the PM’s may very well be because of the seasonal move higher that everyone is geared too. That would keep them bullish just long enough to get the shaft as has occurred on some of the gold stocks.
The metals also have a bull flag pattern. We mention it because often PM stocks lead the metal in price direction, so we need to pay attention to thi bull flag just in case the gold stocks have given for warning. If we break out from the upper channel line, we’ll cast that thought aside.
Our November 19 date may provide a price bottom, but we are more concerned about how the next date and timeframe of November 30 to December 3 play out.
If the next two weeks produce a sluggish rally or corrective sideways type price action, the above trend line cross may be a spot to look for a price Change In Trend. Our focus is on the very early December date being some kind of price high CIT but that is as long as November 19 provides a PM price low. So the most important dates going forward are November 19 and November 30-December 3.
IF PRICES BREAK DOWN BELOW the lows established on the 19th and or cannot get above the resistance lines, then it will be possible for a Dec 3rd low. Even a December 3rd low can still play out in the oscillations for the early 2013 timeframe to be the turn point for this downtrend.
We have made some minor improvements to the QQQ system from last month. There are slightly different oscillators and internally the date choosing process was tweaked very slightly.
The oscillator is in an extreme low position, so expectations are that price will turn up soon. Any price below 61-62 would alert us that price may fall farther than we expect.
Time cycles are hinting relatively strongly that December 3 should be a high. Looking further ahead, we have a very strong date (December 30) on the radar. Unfortunately, the late October date did not catch the price low. Again, watch the low 60’s on the QQQ. If price falls through that level, price could drop farther than we expect.
Summary and outlook for November:
We expect prices in the Precious Metals (PM) will favor a bottom around November 19th or December 3rd and regardless of which we favor the key turn low for the metals is in early 2013. The key is to watch where price is on these next dates and how close to resistance it is occurring at and whether Dec 3rd is coming in at a high or a low.
Last month, Metal prices did not decline quiet as much as we favored, but PM miners dropped further. Prices now appear to be making the decision on this current move. So far Nov 19th had gold trade at 1736 --- just 4 dollar short of the November high. A close above 1742 would favor higher into the December 3rd date. If we can’t get above 1742, the downside potential will still be in play.
There are still valid arguments among the respected analyst that PMs may suffer further price weakness into the later part of 2012/early 2013. The COT short position and longer term cycle studies are among those arguments.
While this bearish scenario should be considered carefully, we think a close above 1742 tilts the trend is now up possibly to very early December and then we will update after we see how the December 3rd date played out.
The general equities sector may bottom soon as well, if it hasn’t done so already. Our indicators are hinting at further price strength into possibly December 3. We are encouraged that the QQQ stopped declining at just above 61. A price drop below 60 on the QQQ index would nullify that scenario.
We feel for our personal investment goals, that buying on weakness at specific time and price areas will be a successful strategy in the longer term.
We’ll have to see how the Nov 19th – December 3rd date’s play out as to cycle highs or lows. The one other Date we’ll watch is December 10th (but we’ll watch from a distance).
The key regardless of the turns in the next two weeks is that our weight of the cycles favor the first days of January 2013 as most likely providing us with another opportunity to purchase metals on weakness.
We’ll follow up in early December once we see the pattern of December 3rd.
Please be aware that any information in this letter is for entertainment purposes only. This is not investment advice. We are not investment advisors. Do not invest any money unless you seek the advice of a qualified investment advisor. Markets are very risky and you can lose money.