GOLD: Moderately Bullish! 06.03.2021

Several years ago I started learning different techniques of forecasting the stock movements. I began with Technical Analysis, then I added the Elliott Waves and, in parallel, I decided to deep dive into the Japanese Candlestick theory.

Long story short. While I deeply value the Elliott Waves and Technical Analysis, I consider the Candlestick knowledge a crown jewel. More I learn by observing and evaluating the candles on different time frames and compare them to the Waves and TA, more I understand its philosophy and my forecasts are becoming more and more precise.

While TA and Waves can help with foretelling the direction of the trend, the possible length of waves, the support and resistance levels and areas, and many other useful criteria, the cannot forecast the exact turning points or they do it with a certain time lag. The beauty of candles is that they can. Of course, every specific candle or a combination of them come with certain odds, bullish or bearish. But the candles are much faster in predicting the turns in stocks.

I find that the longer term candlesticks, the quarterly, the monthly, the weekly, and the daily, are better forecasters. The shorter term candles also work, but the complexity of analysis increases exponentially, making them not practical for the short-term decisions.

Why am I talking about the candles?

I have been bearish on gold for almost seven months since the middle of August 2020 when I made a call that the metal was possibly entering a bear market that was going to last multiple weeks and, possibly, months. I made that call purely on a weekly Bearish Engulfing combo that the gold futures printed in the second week of August. I published the statistics about the combo and its impact on the stock over the long period of time and they supported the call.

Fast forward seven months – gold futures are almost 20% down.

Last week I posted my Monthly and Weekly analysis of gold futures and I was extremely bearish because all Candles, EW, and TA supported a further move down. The stock followed the forecast.

However, on Friday, March 5, the stock closed with a Morning Star candle, a classical one, and this event flipped the odds to the bullish side. Note that everything is bearish in EW and TA, the monthly and weekly candles are bearish, but the odds are bullish.

If the futures open on Sunday higher than closed on Friday and close on Monday higher than the Thursday’s high of 1721.60, the trend would be reversed for the short term. In order to confirm the reversal for the longer term, the next week would need to close above the previous week high of 1757.40. If the next week closes above the major resistance, the November low of 1767.20, I would view this as an almost guaranteed reversal of the trend.

I would like to offer a detailed analysis of the stock on different time frames.

Monthly

The February candle closed below the November low, hinting about a possible multi-month bearish market.
Aggravating factors include the bearish monthly PSAR, the price below the 8 EMA, and a possibility to close below the 20 EMA at the end of March.
The odds are bearish and the next support is expected at the 50 MA, about 1510.

Weekly

The weekly candles show a strong downtrend.
The most concerning development is the Three Black Crows developed over the last three weeks. This continuation combo comes with very high bearish odds. In addition, a rather rare bearish weekly 8/20 EMA cross and both 8 and 20 EMA crossed the 50 MA down.
The odds are very bearish and the next support is viewed at the 100 MA, about 1670.

It is worth noting an ideal alignment of the three candle lows in August, November and March that I marked with a bold red line. The line seems to be representing the bottom of the downtrend channel.

Daily

The daily produced a Morning Star, a possible bullish reversal for the short- and, possibly, for the long-term trend.
While all moving averages are aligned in the worst possible bearish way, the RSI is below 30, pointing to the oversold condition of the stock.
I view the current situation as moderately bullish, possibly changing to very bullish. The latter would depend on the next weekly candle closure as I mentioned before.

Elliott Waves

After Friday’s candle I can see at least three possible scenarios for the development of waves and all of them have approximately the same probabilities. There is one thing in common though – the next wave is expected to be up and the next week would determine the wave character and possible targets.

SUMMARY

I am expecting the next week up.

If the futures open on Sunday higher than closed on Friday and close on Monday higher than the Thursday’s high of 1721.60, the trend would be reversed for the short term. In order to confirm the reversal for the longer term, the next week would need to close above the previous week high of 1757.40. If the next week closes above the major resistance, the November low of 1767.20, I would view this as an almost guaranteed reversal of the trend.

If the gold futures experience a very aggressive beginning of the week, say 2-3% on Monday and Tuesday, I would become very concerned and pay close attention at the 1770-1830 level. The type of closure of the candles in this area would be crucial to determining the future path of the stock.


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