TECHNICAL CYCLES & MORE
There is a technical cycle that is taking place as stocks and Gold appreciate. In the first phase, there is a basing process in both the stock market and Gold (sometimes not happening at the same time). From this basing level, the stock market begins to rally and Gold begins to appreciate as well.
In the second phase, the stock market rallies to a peak which prompts some degree of selling. This selling spills over into Gold and Silver; panic selling usually spills over to Gold and Silver immediately, putting price pressure on these precious metals. In other words, when broad market selling takes place, Gold and Silver are not immune from this panic type of downside price event and suffer accordingly. However, they react differently weeks and months after this type of price correction.
In the final phase, which usually takes place after a deep correction in the US stock market and after some new low price base has set up, the real appreciation for precious metals typically happens in a parabolic price trend. This is when risks are still perceived to be moderately high throughout the globe, yet the stock market continues to attempt to base/drive higher while Gold and Silver begin a real sharp upside price trend.
Pay attention to how the BASE LEVELS on the following Smart Cash Index to Gold Monthly chart are followed by periods of price appreciation in both the stock market and Gold. Notice how Gold has rallied in nearly equal (100% Measured Moves) since 2002 – first rallying nearly $750 (2008), then rallying nearly $950 (2011), and recently rallying nearly $950 (2020). This suggests any continuation of the 100% Measured Move structure would place a new target for Gold near $2,900~3,000. We believe a new parabolic price trend is setting up after the deep double-bottom BASE LEVEL between 2016~2020.
If our research is correct, the Super-Cycles and the deep rotation BASE LEVELS will likely set up a new base level near $1,800 to $1,950 in Gold and near $145 to $175 on our Smart Cash Index chart (see the chart further below). We believe this new base level will act as a launchpad for the new parabolic price trend in Gold and Silver throughout 2022~2023 – possibly longer.
Looking deeper, if you take a technical glance at the Custom Smart Cash Index chart below and consider how gold has advanced over the past 20 years, you’ll see the nearly 100% Measured Moves taking place (which have resulted in a 300%, 200%, 100% series of advances). Yet, what you have also seen is a moderate market peak in 2000 followed by an extensive upside price rally peaking in 2007. From that peak in 2007, we see a deep price decline and a series of sideways price trends leading up to the 2015~2016 US Presidential Election event.
After that, we see a strong upside price rally that peaked in early 2018 (which we are calling the Ultimate Top in the US stock market). This setup has a very telling pattern in price – not quite a Double-Top but rather a failed “Scouting Party” pattern where price attempted to rally above the previous 2007 peak and failed.
Currently, we believe the FUTURE BASE will set up near the current Head-and-Shoulders pattern on the Smart Cash Index or just above the previous BASE LEVEL. There is a risk of a deeper downside price move in the Smart Cash Index which may set up a deeper price base, but we have no indication at this time that any immediate, deeper downside price move is about to unload on the global markets. We believe the next 4+ years will be very similar to the 2009~2011 setup – where the US stock market attempt so establish moderate sideways/upside price base and where Gold settles above $1,800 and starts another measure move or transitions into a parabolic upside move higher.
The question our researchers continue to ask is “will the FUTURE BASE confirm and will Gold stay above $1800 to setup the new launch pad for the parabolic upside price trend?”. We’ve clearly entered a different phase of the market – likely nearing the end of the “Excess Phase”. Obviously, a deep downside price move in the US stock market is not something we want to see happen because it could create far more critical events in the future. Yet, we believe the current BASE LEVEL and the FUTURE BASE level are ideal support zones for the US stock market and the new launch pad for precious metals.
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Chief Market Strategist
Founder of Technical Traders Ltd.