'Kill Zone' Killed The Gold Rally - What's Next

Last week's trading saw gold forming its high in Monday's session, here doing so with the spike up to the 1691.70 figure. From there, a sharp decline was seen into late- week, with the metal dropping all the way down to a Friday low of 1564.00 - also ending the week at or near the same.   

Gold's 'Kill-Zone' Revisited

As per my article from last weekend, gold was moving into the 'kill-zone' - which was basically a key time/price conjunction, which was expected to kill the most recent rally phase. In terms of price, originally mentioned back in early-February, the 154-day cycle had confirmed an upside price target to the 1658-1691 level for the April, 2020 contract - and with that was expected to be met into the late-February timeframe:

Going further with the above, the upper-end of the 154-day target range (i.e., 1690) will often act as a resistance level for the rally. Here, that ended up as the case, with the metal running up to a high of 1691.70 into last Monday - stalling right at the same for the decline into late last week. With that strength, we were able to exit our open long position in the GLD (i.e., gold-tracking ETF) at Monday's open of 158.40 - which was at or near the high for the week.

What's Next for Gold

With the above said and noted, though the 'kill zone' stalled the expected rally, this does not mean that the larger bull move in gold is finished. That is, the action was simply looking to peak the smaller-degree 34 and 72-day cycles, which are looking for additional decline in the days/weeks ahead. Here is our 72-day cycle:

From my 2/23/20 article: "once the next 72-day cycle top is set in place, then the largest percentage correction year-to-date is expected to materialize. This decline should see the 72-day moving average acting as the minimum expected magnet - though there is the decent potential for additional follow-through below the same."

As mentioned in prior articles, the next peak of significance for gold was expected to come from the combination of the 34 and 72-day cycles, with a time target for this high being late-February, plus or minus. Once that high was set in place, then a minimum correction back to the 72-day moving average has been expected to play out, which we now look to be in the process of.

Stepping back then, the next bottom of importance should now come from the same 72-day cycle, made in the coming weeks. At the time this bottom is being seen, we should ideally expect to see our 72-day 'oversold' indicator move above its upper reference line (note: this indicator moves inverse to price, similar to the VIX for the U.S. stock market). You can see from our 72-day chart that this has a way to go before occurring, and is something we will be watching closely in the days/weeks ahead.

Gold, Longer-Term View

For the bigger picture, even with the smaller 34 and 72-day cycles seen as bearish at the present time, the longer-term trend is still viewed as higher into later this year. With that, we are looking for the current downward phase of the smaller-degree cycles to end up as an eventual countertrend affair - though it could come from lower lows first. In terms of time, we have a more precise range for the next 72-day trough to occur, which is noted in our thrice-weekly Gold Wave Trader market report.

Going further with the above, we expected the downward phase of the 72-day cycle to give way to the largest-percentage decline YTD for the gold market - something we have obviously seen with the action last week. Once the next bottom is in place for the 72-day component, we are looking for a very sharp rally back to higher highs in the weeks/months to follow, once again with more exact details spelled out in our Gold Wave Trader report.

U.S. Stock Market Update

From my article posted last weekend: "we are now moving into the range where the next mid-term peak should try and form. And, while there is some potential that this peak is already set in place (with last week's sharp decline), there is yet no confirmation of the same. We are monitoring this very closely in real-time going forward, as what follows should be the largest-percentage decline of the year for U.S. stocks."

As mentioned above, the U.S. stock market - as measured by the S&P 500 index (or SPX) was moving into mid-term topping range, with the largest-percentage correction of the year expected to follow. In terms of time, the ideal path had this correction starting from an early-March high, and lasting into mid-Spring of this year.

Having said the above, our 'reversal point' methodology had identified the 3315.82 SPX CASH figure as the key dividing line with the mid-term cycles. In other words, once this figure was taken out to the downside (which occurred at last Monday's open), it would trigger the largest decline of the year to be in force. Take a look at the chart below:

The chart above once again shows the most dominant of the mid-term cycles that I track, the 180-day (or 9-month) component. With that, taking out the 3315.82 SPX CASH figure to the downside on Monday was the technical trigger that confirmed the downward phase of this cycle to be in force.

From last weekend: "once this 180-day cycle does top out, the SPX is expected to see its largest percentage decline of the year playing out, one which sees the 200-day moving average acting as the bare-minimum price magnet. Having said that, due to technical considerations, there is the obvious potential for additional weakness through the same - though the overall correction is expected to end up as a larger countertrend affair."

In terms of price, as mentioned in prior articles, the 200-day moving average would act as the minimum expected magnet to the downward phase of the 180-day cycle - though with the obvious potential for additional weakness through the same, due to the configuration of a larger 360-day cycle that we also track. What was not expected was the speed of the recent decline - with the mid-term downward phase favored to take several months before bottoming out.

With the above said and noted, the obvious question is whether last week's decline was the end of the recent correction - or whether it is the beginning of a larger bear market phase. I suspect that the answer is somewhere in the middle, and we won't have a more clear picture until additional data becomes available. However, we are viewing the recent decline as all or part of a larger countertrend correction, at least until proven to the contrary.

The Bottom Line

The overall bottom line is that the downward phasing of the 72-day cycle is seen as being back in force for the gold market, with additional decline favored in the coming weeks - though with the normal up-and-down gyrations seen in-between. In terms of patterns, the downward phase of this cycle is expected to end up as countertrend, to be followed by a sharp rally in the months to follow. As for U.S. stocks, the larger decline phase of the mid-term cycles (i.e., 180 and 360-day) is obviously in progress, with the next bottom of significance expected to come from these same two waves, though it is too early to suggest this low has been set in place - but is something we will be watching with great interest going forward.

Jim Curry
The Gold Wave Trader
http://goldwavetrader.com/
http://cyclewave.homestead.com/