by Alexandra Lienhard
Updated: July 10, 2017
Tom Denham, the editor of our Metals Pro Service, tells you about the importance of the market's price momentum and explains what momentum is saying about the trend in gold. Watch this new interview to get Tom's latest outlook across the metals markets.
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[Editor's note: The text version of the video is below.]
Alexandra Lienhard: Today on ElliottWaveTV, I'm joined by Tom Denham, Elliott Wave International's Senior Metals Analyst and editor of EWI's Metals Pro Service. Now Tom, you often focus on momentum. Why is that?
Tom Denham: You know, with the Elliott Wave principle, when we apply that to financial markets, we're able to determine the context of price action in the market, and we can establish the trend, whether it's up or down. We can establish whether the current movement is extending the trend or correcting the trend. But we don't always have a good sense of whether or not the market is in a strong or a weak position or it may not always show signs of when we're at a turn. And looking at momentum can add that piece to the puzzle. It can also give us some trigger signals, at least that's how I use it in the small degree charts. For instance, when I have bullish momentum, that's like-- that means the coast is clear to follow on with my bullish Elliott Wave forecast. But if momentum turns bearish, that is a big caution flag, and it would be time for traders to either suspend their positions or tighten up their monitoring so that they don't get caught unawares if a turn takes place.
AL: And how does momentum currently look on gold, both short- and long-term?
TD: Now, when it comes to momentum on gold, at the level of a weekly chart, the momentum is fully bearish right now. It is pointing straight down. On the daily chart, that momentum is bearish, but it's showing a little bit of a wobble, which means it could change soon. And we normally will see changes in momentum sooner on a daily chart than we would on a weekly chart. And interestingly, if we look at a 60-minute chart, it's just a mess. And when I look at momentum on a 60-minute chart, it says, don't try to trade this market, just watch it because it could go either way at the moment.
AL: Has your long-term view of gold changed given the decline over the last month?
TD: Not the long-term view. At the level of a monthly chart and a weekly chart, I am still looking up, anticipating that gold will push above the high that it made back in the summer of 2016. On the daily charts, I've now turned fully bearish. I think we are in a corrective phase. And though it could conceivably form a bottom at current levels, there's no meaningful sign of that at the level of a daily chart. And so I hold a bearish view for the time being.
AL: Copper has been bid the last few months despite recent weakness. Is there anything in the signature of this recent rally that has implications for the next large move?
TD: Well, I just have to say I enjoyed copper in the last few weeks. It was nice to have something that was moving up and that was moving in a very smooth fashion. But it wasn't smooth all the way from the bottom to the top. It rallied in three-wave form. And so as it has shown a little bit of weakness lately, that really highlights the potential of the current move retracing a substantial portion of what we've seen just now.
AL: And yet aluminum seems to be painting a different picture.
TD: Yes it has. And you know, I have felt vulnerable and exposed holding a bullish view with aluminum given how weak other metals have been. And yet aluminum's pulled through. It has-- it had some weak days. It had a week or two where we had some weakness. But the damage was very slight, and at the level of a monthly chart, we're in a bull market. And I think that bull market in aluminum is going to continue for several more months.
AL: And how do you view the rest of the base metals?
TD: The base metals have been a little bit tricky. When I look at them on the monthly charts, my big picture view for lead and tin and zinc are solidly bullish. But there have been some real strains in that bullish outlook, and lead was one of them. Lead spent a lot of time this year weak. It had a steep drop, and then it came back up and then it dropped some more. But overall, now that I've got the perspective of all of this action, it looks like the weakness was a fourth-wave correction, and we're in the early stages of a fifth wave up. And I'm seeing that kind of set-up really across the industrial metal complex. Nickel is a little questionable, but zinc and tin and lead are looking like aluminum, very likely to be up over the coming months.