Wednesday, June 24, 2015

bear markets ending

Here are monthly bar charts of three commodities which I follow in my daily guesstimates. All three have dropped substantially in price over the past several years and in each case I think the long drop is over or nearly so.

After gold bear market started from the 2011 top I adopted a longer term target of 850, the level where the cash gold formed its first big top in January of 1980. I was trading gold then and remember that top well. It was marked by the collapse of the Bunker Hunt corner in silver which then had traded very briefly at $48.40 per ounce. The high in silver at that 1980 top was only a dollar or so lower than its price at the 2011 top 31 years later. This gives you some idea of what extreme market conditions prevailed back in early 1980.  Also in January of that year gold futures had moved up to a high of 874 is a series of limit days up, then turned right around and dropped nearly $200 dollars per ounce in a series of limit days down.

Gold has not reached my original long term target (lower green line on the gold chart) yet and I think it probably won't, at least not before the market rallies substantially above current levels. In fact gold has not even dropped as low as the midpoint (upper green line) of the move up from the 1998 low at 252 to its 2011 top at 1923. I take this to be a sign of strength. If you look closely at the chart you will see the 200 day moving average (red line) passing through prices at current levels but still headed generally lower. I think the first two technical signs that a new bull market has started will be a move above the declining purple trendline in this chart and a turn upwards in the 200 day moving average.

Silver has dropped to within a dollar or so of my original bear market target of $13 (red line). A move above the declining purple trend line and a turn up in the 200 day moving average will be clues that a new bull market in silver has started.

I have been expecting West Texas crude oil to match its late 2008 low of $33 per barrel. But the market has instead stabilized just above support at $41 (red line) associated with the January 1991 Gulf War top in crude. The market has also duplicated the size of its 2011-2014 trading range (purple rectangles). My best guess now is that the market will trade up and down within this lower rectangle for a few years. This gives an upside limit of 75 and a downside limit of 41. I doubt crude will go much above 75 largely because the power of the OPEC cartel has been broken by the fracking revolution in the US.

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