The Little Things Done Well!
Welcome to the new financial year and all that entails! The community I find myself in these days measures the successes and failures around the financial year start and finish for its returns. For most in the Australian superannuation system you will see a negative return for the last 12 months and this will be marked harshly as a failure. Now of course it’s not a great sign of doing things well but remember the main issue for funds is that they must be invested all of the time. That is very different to what our mandates are as private traders. We can move in and out as well as sit on our hands when needed.
I have had a forced benching from markets due to COVID and that can be a good thing as it allows us to see things through a different lens. Whilst I didn’t have the headspace to perform the normal routines of analysis and trade management, I did have some time to read and review the “noise” that’s out there from all different market segments. As I mentioned in my last article the 50% level is such a simple but powerful tool to understand what markets “may” do in the future. We continue to see pessimism and a revaluation of global economies post COVID, inflation and interest rate hikes.
Last month l looked at how the SPI200 had run into the June seasonal date and how the 50% levels were in play. We may say as “expected” we saw the short side of the market slow and a short-term low form and that the balance of buying and selling pressure came together in what is a more sideways pattern.
Chart 1 shows the COVID sell off in 2020 and the current run down from All-Time High. We can also see the halfway point of the range from 2020 to 2022. Both techniques generate a 50% level to watch, and both are currently lower than the current prices. If markets were to continue lower these would both be price pressure points to watch and could be useful areas to watch for setups with our other tools.
Chart 1 – Daily Bar Chart SPI200
When I mentioned “noise” in the markets there continues to be so many “channels” for information and opinions to saturate our headspace. There is no possible way for us to process and equally evaluate all these signals. The one I currently find is making the most noise is how a large segment of gold/silver “stackers” are preparing for the end of the fiat currency “experiment” and a return, somehow, to a gold-backed currency system.
Now each to their own as they say, I won’t argue a case of for or against that type of event occurring, but the world would become a very different place if that was to occur. One of the main themes in this space is that gold prices are artificially suppressed by futures markets and sovereign governments are buying tonnes of gold and storing it for the future Armageddon.
I don’t see any issues with holding precious metals and I have benefited from trading them over the years. Gold has again returned as an all or nothing approach for some, the same argument has been made by many around crypto currencies and we have all seen the volatility in that space. I cannot tell the future on where these assets become the new currency of transaction at the local supermarket, but I can study the price action and do the simple things well.
Chart 2 shows the US gold futures chart from the lowest point we have in ProfitSource in 1999 at $253.20 per ounce. Using that low as a Lows Resistance Card we can see there have been areas where this could have been combined with our other price pressure tools to form clusters. The current All-Time High in 2020 is very close to 8.25 times the low and we have recently seen a Double Top pattern with the 2022 high.
Chart 2 – Monthly Bar Chart GC-SpotV
Chart 3 shows the more recent pattern of a double top and subsequent run down. As we are closing in on the lows around $1673.30, I will be closely watching to see if those lows hold. As we know David’s rule around double top and bottom patterns we could be seeing some downside targets significantly further away from where we are now.
Chart 3 – Monthly Bar Chart GC-SpotV
This could all eventuate into nothing, and that is part and parcel of what we do as traders, we undertake analysis and then wait to see what markets do and trade according to our trading plan. I see this as far more engaging and reliable than attempting to predict the downside of fiat currency systems globally.
The gold and silver markets come and go in terms of the spotlight, but they are worth pursuing in the current market and with so many Australian resources companies that are in this space. As a commodity they have intrinsic value in jewellery, but their industrial uses continue to grow. Just a word of caution, they do attract participants to the market that have some weird and wonderful thoughts on them as my recent look down the well opened my eyes too.
The key message here is how to keep things simple when the rest of the world is making things increasingly more muddled.
Good Trading
Aaron Lynch