Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted May 20, 2006 at 02:02PM

Introduction

Well the correction that would never come, finally came, and many things gold got taken out to the wood shed and gutted.

Bullion Daily



The major technical support metric of the 50 dma still lies far below.

Bullion Weekly



The overbought RSI readings are par for the course in Phase II type moves, but the buying intensity (green line on the ADX) had reached historic levels...the market basically ran out of buyers, and then everyone ran for the exits.

Bullion ETF Daily



The high volume buying also suggests a climax of at least an intermediate nature, and will take some time to completely work off.

HUI Daily



The long shadow on the candle suggest that the bounce players were moving in, and the shorts were taking initial profits. I think they will get some additional company this coming week.

XAU/Gold Ratio



It is not shown here but there is some intermediate horizontal support at current levels. Ergo one should expect stocks to start digging in.

US Dollar Daily



As you may know there are some ellioticians of note that say we have hit a bottom of trading significance. That a Wave B has ended and a Wave C up to new highs will start incurring.

I have no firm opinion on that. My own first instinct is that there will be a technical bounce, and then at least some kind of retest of recent lows, if not the key 80 level.

Even if the dollar starts rising up, and therefore giving a reason for traders to book gold profits, there should, in a bull market of this maturity, come a point in the future where all things gold starts moving up regardless of what the dollar is doing.

Some notes

Well there is ample evidence that a top of some signifcance has formed, with new levels of participation at the top.

At the best I see gold now starting some kind of sideways consolidation with current levels marking the low.

To my eyes however I think what will happen is that the gold market will bounce here, but the bounce will be greeted by traders who were surprised at the intensity of the drop, as a chance to unload, and for short sellers to reenter.

Bullion I think needs to get to at least a few percent of the 50 dma.

Trading thoughts.

I would enter any trades at this point, from a short-term bounce trading mentality. One can hope that things morph bullishly, but I would not bet on that. Make your 10 percent, get out and see what happens with the sector as a whole.

As such I would stay away from the speculative garbage stocks that can have a mind of their own. Those I keep on the watchlist to see if they reach levels where one can buy for the longer term.

For shorter term trades, I like using the "name" stocks that have good liquidity. Goldcorps, Glamis, BGO, Kinross...stuff like that. Some of these have been just decimated.

Stops are de rigeur ... you either nail a short term entry, or you get out...but then eveyone has their own "style" and methods for risk mitigation.

Bullet Bullet Bullet