Today we warn of a potential downside price rotation in precious metals that may last 3~5+ weeks as metals set up for a massive breakout rally that we believe will start in late April or early May. Our custom indicators are suggesting that precious metals, and the general U.S. stock markets, may be setting up for a bit of a reprieve rotation after a very impressive recovery. Be patient as we believe this pullback in prices will provide an excellent buying opportunity for the eventual momentum rally setting up in about 30+ days.
Let's start by looking at our Custom Market Volatility indicators. The Weekly chart below highlights the recent recovery in the U.S. stock market since the December 24, 2018 lows and also shows that the current recovery level is sitting right at a 61.8% Fibonacci level. It is our belief that a period of general price weakness will begin to unfold over the next 10~15+ days in the U.S. stock market. This rotation is very healthy for the next leg higher – the momentum rally we have been suggesting will take place in the near future.
We believe the downside rotation in U.S. stocks will be the result of renewed calm from expectations that the global economy may begin a recovery process as the US/China trade issues and other geopolitical issues seem to become more resolved. We believe the recent upside move in the U.S. stock markets were a flight to safety for many foreign investors fearing that US/China trade issues would result in very harsh outcomes near March 1. If the trade issues appear to be close to a resolution, this flight-to-safety trade may wane a bit over the next 10~20+ days as emerging markets may see a dramatic upside bounce in valuations.
How does this relate to gold and silver? It is very likely that the upside pricing pressure in precious metals will stall a bit as the global equities markets take center stage. If our analysis is correct, the developed markets will contract while emerging markets take focus. This falls right into line with our analysis that the U.S. stock markets will pause/rotate over the next 10~20+ days in preparation for a larger upside price swing.
Our custom Gold/Silver Index is showing that precious metals are trading in a sideways Pennant/Flag formation near levels that have historically been resistance. We still believe the upside in the precious-metals market over the long term is substantial, yet we believe the news of a US/China trade resolution and the resulting rally in the emerging markets will remove much of the upside pricing pressure in the precious-metals markets for about 15+ days before momentum support is found.
Our researchers believe the timing of this move is right for a short-term swing trade. Be prepared for rotation in nearly all the global markets and for emerging markets to see an upside price rally as a result of positive news from the U.S. and China over the next 2+ weeks.
Chris Vermeulen
www.TheTechnicalTraders.com