Update: Gold Ready to Rocket? Yen and Cable Say Yes

The Trend Retains the Name

Intro by Vince Lanci  and Bon Scott for Soren K. Group

The pattern continues in Gold, with last week"s move reaffirming the wave count Enda is using below. Friday"s rally puts the market right above the high on the 30 minute chart established in the previous "5". The next  "1" would be completed if gold pierced the $1271.21 level. After that, any retracement that holds $1259.78 further confirms a wave  seeking final extensions to the $1550 area. A drop below $1247 at this point puts into  question the pattern, but does not negate it. 

The 4 hour chart shows a nice traditional channel with an upward bias that also respects the counts described. Note the steepness in the rally in that chart. Impulsiveness is in play now. To clarify, we identify "impulsiveness as a negative describing momentum chasing funds. But the term is not being used the same way here. The  author is describing a market that is following the path of least resistance; which right now is higher. This does warn of equally violent pullbacks, but until the wave count is put into question below $1247 the short term and long term bias are aligned.

The daily chart shows the macro goal of this pattern: a "corrective" high in the $1550 area. Nothing new here. But that is what bulls want right now. And they are getting it.

 GBPUSD, JPY, and Gold Walking Hand in Hand?

Other currencies are lining up to corroborate the  count here as well. As her title implies, a GBPUSD high is potentially indicative of an acceleration  in Gold. We are fans of JPY behavior when it comes to Gold correlation. Note the similarities at the 30 minute and daily charts of the Gold and the JPY below in the analysis. Here is a quick overview. 

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Why is this? There are several potential reasons for the eerie parallel between JPY and Gold. One simple one is this. In Asia, the JPY is viewed as the most stable regional currency. The Yen is viewed as the USD of the far east. So when Chinese and other Asian players seek safety, the buy Gold and Yen as well as USD if the crisis is EU based. We feel as the Asian Cartel picks up more strength and the USD Petrodollar becomes less powerful, this JPY/ Gold positive correlation will strengthen more.

Enda"s GBP/USD noted pairing is just icing on a Golden cake to us. But we are happy to now see it. -  SKG

GBPUSD top in place, GOLD ready to rocket?

by Enda Glynn of BULLWAVES.ORG

GOLD - 30 min

4 Hours

Daily

My Bias: Long towards 1550
Wave Structure: ZigZag correction to the upside.
Long term wave count: Topping in wave (B) at 1550
Important risk events: USD: N/A. 

Today"s rally in GOLD has triggered the alternate wave count for wave "ii" brown which I had spoken about.
That means wave "ii" brown traced out a running flat which bottomed at 1247.
The rise off that low now has a nice impulsive look to it,
and one more push up would break the resistance level and create a clear five wave form off the low.
That type of action would complete wave "1" pink.
Wave "2" pink should find support at 1259.
Any break of 1247 form this point will signal that wave "ii" brown was extending into a more complex form.

For early next week, watch for a break of 1271 to prove the bullish case.

Thats it for this week, I wish you all a happy and peaceful weekend.

GBPUSD

30 min

4 Hours

Daily

My Bias: short below parity.
Wave Structure:  continuing impulsive structure to the downside in wave (5)
Long term wave count: decline in wave (5) blue, below parity
Important risk events: GBP: N/A. USD: N/A. 

Well!
The market finally gave us the action which the main wave count had called for.
That is an impulsive decline in a possible wave "3" grey and a break of that important support line at 1.2865.

The focus has now fully shifted to the downside, and the beginning of a renewed downtrend in wave (5) blue.
The indesision in the wave pattern over the last few days was resolved with a very impulsive third wave down.

Wave "2" grey traced out a running flat correction, a wave which is always throws the cat amongst the pigeons!
At the moment I can count five waves complete "within wave "3".
For next week we should get a three wave correction in wave "4" grey and wave "5" grey will likely decline into the trend line once more.
Support at 1.2865 now becomes a significant resistance level and should hold the price down for now.
Look for wave "4" grey to complete below 1.2865 on Monday.

USDJPY

30 min

4 Hours

Daily

My Bias: LONG
Wave Structure: rally in wave [C]
Long term wave count: wave [C] is underway, upside to above 136.00
Important risk events: JPY: N/A. USD: N/A. 

Despite further declines today in USDJPY,
The price did not take out the support at 110.85 which leaves the bullish short term wave count intact.
Today"s decline completes a three wave form off the recent high labeled wave "1" pink.

The current wave count still calls for a major rally in wave "3" pink, and the support is at that wave "2" low of 110.85.
If the price breaks 111.95, then wave "3" will likely be underway.
A break of 111.47 strengthen the bullish case in the short term.
In the early trade next week, watch for the key support at 110.85 to hold, and a break of 111.47.

DOW JONES INDUSTRIALS

30 min

4 Hours

Daily

My Bias: market topping process ongoing
Wave Structure: Impulsive 5 wave structure, possibly topping in an all time high.
Long term wave count: Topping in wave (5)
Important risk events: USD: N/A. 

The DOW is now moving in a corrective pattern, possibly in wave "ii" pink.
I have labelled the short term chart as a complete wave "a" and "b" in blue.
That leaves wave "c" blue to the downside to finish off wave "ii" pink.

I have marked 20925 as the initial target for wave "c" blue.
This is the low of the previous fourth wave.
20875 marks the Fibonacci 38.2% retracement level.

For Monday, a break of 21037, the wave "a" low will signal wave "c" has started.
The low at wave "ii" pink offers the next best opportunity to enter long.

It is Memorial Day on Monday, and U.S market is closed, the London market is closed also for the summer bank holiday.
So, I will see you all again after the close on Tuesday the 30th.

More analysis HERE

Good Luck

The Simplest Reason Behind Collapsing Volatility: Hedge Funds Are Barely Trading

"Gamma", "vega", CTAs, risk-parity, vol-neutral, central bank vol-suppression, the soaring popularity of (inverse) VIX ETFs , and so on: over the past year there have been countless attempts to explain why despite the surging political uncertainty in recent years, and especially since the US election...

... global equity volatility, both implied and realized, has tumbled to record lows, sliding even below levels not even seen before the 2008 financial crisis.

There may be a much simpler reason.

In its latest hedge fund tracker report, which every quarter analyzes the 13F filings by US hedge funds, Goldman found something quite striking. When looking at the gross portfolio turnover of hedge funds in Q1, the bank found that it had retreated to a record low at 28% of positions in 1Q 2017.

At the same time, turnover of the largest quartile of hedge fund positions, which account for two-thirds of hedge fund long holdings, fell to 15%, close to its lowest level since 2002. As a result the typical hedge fund has 67% of its long equity assets invested in its 10 largest positions, a decline from last quarter but still near historical highs.

This suggests that in the first quarter, hedge funds found themselves even further "paralyzed", and for whatever reason have reduced overall trading levels to all time lows. This further suggests that with virtually no trading by the "smart money", those traditionally most likely to put on "volatile" positions, contrary to consensus, the bulk of executed trading took place among passive funds and other trend followers, which would facilitate and accelerate the ongoing decline in volatility.

Stated simply: volatility has collapsed for the simple reason that increasingly fewer directional, non-momentum chasing market participants are actually trading.

But if hedge fund turnover has collapsed, how do these "active managers" hope to generate alpha? One explanation is that in lieu of stock picking, hedge funds have simply lifted leverage to post-crisis highs as their most popular long positions outperformed in a rising equity market. The Goldman Sachs Prime Services Weekly shows that, after bottoming in mid-2016, hedge fund net and gross exposures have continued to rise. Net exposure (73%) is now roughly in line with its cycle highs reached in 2013, while gross leverage (234%) has soared to new post-crisis highs.

This dynamic has contributed to a virtuous cycle as our Hedge Fund VIP basket of the most popular hedge fund long positions rallied, outperforming the S&P 500 by 360 bp YTD (10.1% vs. 6.5%).

And while such dramatic concentration among the top positions has been observed before, most recently yesterday when we showed the fresh collapse in market breadth vs the once again resilient "broader" market...

... this bring up another key concern: with the bulk of hedge funds holding just a handful of names - mostly tech stocks comprising the so-called FAANG, which as a group have returned nearly 30% and are responsible for half of the S&P YTD gains - proppeled to record highs by a fresh burst of momentum chasing, what happens when for whatever reason, this trade is unwound.

This is Goldman"s take:

The rise in leverage alongside growing popularity of outperforming growth stocks has raised some concerns among clients, even while boosting their portfolios. Investors recall the sharp momentum reversal of early 2016, which came on the heels of a similar period of rising popularity and performance for “FANG” (FB, AMZN, NFLX, GOOGL) and similar stocks in late 2015.

Indeed, investors have reason to be concerned: for a vivid example of what happens when such "hedge fund" hotel trades go into reverse, look no further than Valeant...