June 11, 2016, Weekly Summary: The Patterns Still Fit

The Patterns Still Fit (for the most part)

It has been said that ‘its not much of a mind that can’t be changed’. We try to remember that, and not fall in love with our own conclusions. If the situation changes, our analysis will change also; when the probabilities change, we change our minds. As of Friday, the situation continues to fit within the patterns we are monitoring, even as our Price Modelling System continues to become less bearish. The balance of probabilities is still to the downside.

The chart below shows the sentiment counter-trend pattern still in effect, which maintains the probability of a downturn.

The bull sentiment patterns illustrated in the chart below, have also not been violated and continue to signal a downtrend.

Pulling away and looking at the big-picture, we do find a possible change to the bull:bear asset ratio (blue circles in the chart below) that, if it fails to turn around next week, could signal an increase in the probability of new highs.
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Gold

Gold’s price movements are still tied to the market’s expectations of future actions by the FED. The CME FedWatch Tool is showing only a 1.9% chance of a hike at the meeting next week, and only a 23% chance of one at the end of July, so it is no wonder that the dollar is weak and gold is strong. However, we are of the view that the FED really-really wants to raise rates, and they will seize upon any thin excuse in order to do so. The language in the statement coming out of next weeks’ meeting will be important. If Yellen and gang explicitly keep a hike on the table for July, then there could be a pronounced downward movement in both gold and equities.

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The gold vs dollar chart (below) continues to fit within the outlined pattern. As stated above, it is up to the FED.

The movement of gold vs the 30-year bond is also following the market’s assumptions about the FED’s future actions.

In last week’s summary, we pointed out that both the speculators and commercial traders had reduced their positions over the previous two weeks, but the report did not include the Friday when gold rallied strongly. This week’s report does include that Friday, and it shows a reversal from the previous week: speculators increased their long positions, and commercials increased their short positions. Speculators went from 78% long last week, to 82% long this week, while commercials went from 72% up to 76% short. The commercials are happy to sell gold above $1250 and this is likely to keep a lid on the gold price.