June 2013 edition
By Randy Johnson
Future Buttonwood Dates:
June 14-16, 27
Weekly Z Dates:
June 6, 17
None in June
WHAT WE SUGGESTED LAST MONTH:
The extremely low investor sentiment was likely driven by the deep price drop. It certainly appears to be the case – that mid April was a major price low. As contrary investors we should be conditioned to buy when such a steep drop occurs.
The second idea that price may continue to fall in the months ahead can also be true, and there is a small group of smart forecasters who think just that. But for now, the price appears headed higher. Interestingly, there are Astro based events and anniversaries that suggest the June/July time period may produce a Precious Metals price high of importance.
These areas could be key price turning points in the future and should be watched carefully for a Change-In-Trend (CIT) as price approaches them.
This model has done an amazing job in the last year of finding intermediate price Change-In-Trends (CITs) when back tested. It has also flipped back and forth between highs and lows consistently. The mid April date was obviously a low, so we believe the odds are good that the June 17-19 date could be a price high. Only price action and how it interacts with these dates can give you clues as to future price direction.
OVERVIEW FROM MAY
In our last update, we were looking for generally higher prices from the crash low as we arrive at the June 17th-18th time frame and while gold is currently higher, the rally has been subdued. Silver came into the month virtually unchanged and has been weaker than we initially expected. It has since formed a new closing low on Friday June 7th for the move. With that said, our Z date projections and outlook for lower into May 20th was spot on. It was from here we projected a push back up and that is exactly what we got going into last week but the peak last Friday now calls into question whether price continues higher into the June 17th-18th cycle.
Z DATES PROJECTIONS
IF we look at the Z dates from last month, we projected the May 3rd-6th as a price high and as it turned out the May 3rd-6th area produced the exact high day since the major low on May 6th in gold at 1487.20.
We also projected that the next Z date could come in as a low.
The next date of May 20th-21st produced the lowest price pullback in gold at 1336.60 and the lowest price of the crash in silver at 20.25 on the 20th.
Overall the Z dates performed the best hitting exact targets.
Our outlook and best projection was for the May 6th time frame to produce a high and while it was a very significant time, we actually got an acceleration in price as the trend kept going higher. We've pointed out that these dates sometimes do exactly that---they accelerate. So where dd the high come in? Exactly on the Z-Date of May 21st !!
We now have the June 17th-18th date straight ahead and so with new data lets look and see what the current projection is.
Current Market Outlook for June:
Using the chart above:
WEEKLY Z DATES
Let’s begin by looking at the May 22-24 date and how we think it fits in to the recent price action of GLD. Price has dropped since late March, into what looks like a double bottom pattern. Our May 22-24 date occurs at the price low of the second bottom – so we have labeled the late May date as a price low (note red arrow). GLD made a new low here but gold held its previous low of 1321 and gave a secondary low at 1337.
The next date generated by the longer term Weekly Z model is August 20th. With the double bottom pattern, bearish investor sentiment and recent bullish Commitment of Traders report (COT) positions we wonder if price is set to rally soon. If price does not decline to a new low below the 130 level, the August 20 date may come in as a price high. It's possible that the daily Z date (see next chart below) will provide a pullback within the current range and give us an overall move higher into the August date.
However we do want to mention that there are important dates coming from other cycles that show the July 17th - 21st as an important cyclical time as well by Crawford and Merriman. It's not out of the question that a low from June could produce a rally toward August but have a peak in July that could make this next date another low point. For now we'll favor higher into that date, but due to the seasonal factors that often produce summer lows in metals, we'll take another look at it in our July update. One note of interest is GoldTrends has always said They DON'T like August highs and the Highs in gold from August 2011 has produced an almost 2 year correction in metals. So let's review it again next month.
CHART ABOVE DAILY Z DATES
The previous date of May 3-6 marked the price high for SLV before a decline into May 20-21 - similar to the previous GLD chart. (The May 6th date was the EXACT high day in GOLD and the 20th was the 10% silver drop to 20.25.)
The next observation we want to make has to do with the price action in SLV on June 7. SLV is very near a new low. The next date of June 17-18 is little more than a week away. I believe price is hinting that a new low in SLV is in the making and the bottom could occur during our June 17-18 date. Also interesting is the thought that GLD might not make a new low during June 17-18. If so it would create an inter market divergence and would give credibility to the WEEKLY Z date of August.
If that scenario plays out, we would also see the last two of our dates (May 20-24 and June 17-18) marking the last two lows for the Daily Z SLV model. Odds would favor a price rally to follow that kind of price and date action.
CHART ABOVE SENTIMENT:
This chart represents investor sentiment of the Precious Metals mining stocks over the last two years (Courtesy of Stock Charts). There has been much discussion from various investors and newsletter writers about the significance of two “zero” readings in this sentiment index. The meaning of these extremely low readings is that NO investor thinks PM mining stocks will rally in a meaningful way in the near future (during late April and late May when the survey was taken). A minority of the investors do get the idea that this measurement is a contrary indicator that means that a major price low is in the making for Precious Metals and their mining stocks. But perhaps these people are missing a key point to their interpretation of this sentiment measurement. Such extreme opinions are often made at major price lows but also at the end of the third wave of Elliot waves. Perhaps price is not yet at a major low, but only completing the large decline of an Elliot wave three?
Let’s begin by looking at the next long term type of date being generated by our GLD Weekly Z model (August 20). We have already mapped out one possible scenario of a price low being put in place in the next 10 days or so (June 17-18). A number of our different models provide mid June as a valid change in trend (CIT) date to watch in the future. We will show those charts a little later in the report.
Prices have not rallied into our mid June date as we proposed in the last couple of Buttonwood issues. Weakness has permeated the Precious metals markets for many months and continues to be the case currently. So we are looking further out in time for a price high as a bottoming process appears to be happening as we speak.
Where is the most likely place for an August 20 price high to occur if indeed it ends up being a high? The bottom two blue trend lines were drawn from previous areas of support that outlined the larger triangle formation in GLD since the correction started in mid 2011. In the chart above, these trend lines represent areas of possible price resistance.
This chart of GLD shows placement of one count of a five wave impulse sequence using Elliot wave theory. Notice that we have labeled the mid April price low as a wave 3 bottom. This would fit with our previous discussion of extremely low investor sentiment.
A closer look at the next few months should show us a smaller five wave sequence heading up into August 20 if the presented scenario is in fact occurring. A price break above our two blue trend lines and/or a powerful rally higher would invalidate our idea that the next few months are a corrective price movement.
The other alternative scenario that may be playing out is that a mid June low could be THE bottom of the multiyear Precious Metals correction. The very low sentiment readings certainly support that idea. Smart money like Soros, Rick Rule and others who have a proven track record for buying the lows would also support that idea, although Rule is a stock selector and he feels that the low could be a consolidation that takes a while to play out. The chart above shows the 14-15 week cycle hitting on the recent lows. If Silver makes a new low and Gold does not in a mid June low, which would set up an interesting divergence pattern.
As promised, here is another model showing the mid June date. The “GLD Weekly plus” model generates a few more dates than the “GLD Weekly” model.
The shortest term model that we use for the Precious Metals sector is getting a bit sloppy lately. While the May 20 date was dead on, May 23-24 was less so. And the model did not provide a date for the June 6 price high. The June 14 date is close to our June 17-18 date (1-2 trading days) so perhaps it will catch the next price CIT.
General Equities Market Recap:
WHAT WE SAID LAST UPDATE:
This chart might be more help to determine where price is going. This indicator almost always hits 3-4 days before the price CIT occurs. The last date (blue arrow) was April 30. If you add 3-4 trading days – you get a CIT projected for May 6. This indicator has not been tested in real time yet, but is something to be aware of. If May 6 (+/-) does turn out to be a price high CIT, the next date for the standard IWM model of July 30 just might be a low. Wild guess, but the date should be a CIT none the less. Price is the ultimate indicator – especially for these date CITs. Watch the price trend as it comes into each date. Occasionally, price will move sideways into a date making it difficult to ascertain what the price trend is. Those are good times to stand aside.
General Equities outlook for June.
The May 6 date didn't turn out to be a top, but a hard and quick pullback low, that exploded higher that led to a HIGH on the 21st right at he Z DAILY DATE that picked the gold high (20th) also.
Going forward, we have two dates generated for late July. If price weakness continues through the month of June, it would increase the odds that our late July dates could be price lows. However, we cannot project that forecast with any strong degree of certainty. A short term correction is currently in play, so we'll have to see if it leads to a price low in stocks. The first pullback support is the 1590-1600 in the S&P and if that area holds then it could turn out that stocks do move higher. If it doesn't, then the potential for lower into this July 30th date could in fact lead to a low.
Summary and Outlook for June 2013:
It appears that Precious Metals prices are currently trying to find a bottom. Another drop may occur into our June 17-18(19) date. If prices do find a bottom in mid June, we would then look for a trend higher into August. Silver appears set to make a new low while Gold may not.
To be clear, Precious Metals are making a bottom, time wise, right here. The bottom is of historical significance if only because of the severe bearish sentiment. The questions are - will prices drop later in the year to an even lower level? Do I back up the truck now or later in the year? As an investor I want to keep adding a bit on dips as a good strategy in a drawn out bear, but as a trader, the trends have been very choppy so I want to use caution when applying these dates. They have worked well, so with GOOD STOPS, they might be worth a speculation.
A mid June low that sees Silver make a new low and Gold holding above recent lows will have me exercising my old habit. Accumulating on weakness without margin, in increments. Keeping plenty of dry powder in case September 2013 brings further opportunity is how I'm playing it right now.
We still feel that a high level of caution will be warranted if price cannot break out of the trend lines shown on the GLD charts by our August date. If price does not show great strength in the next couple of months a new leg down could occur later in 2013.
General equities should have an intermediate change in trend in late July. If prices continue weak throughout June, and break below the 1590-1600 area in the S&P, July 30 could mark a price low.
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.