Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted Oct 3, 2004 at 12:53AM

Introduction

Gold getting above 410 early in the week signalled that all was well for inflation friendly stocks which saw nice gains.

The trend remains up on all time-frames but the condition has now become overbought. I expect a pull-back to start in the very near future. As such I was selling into rallies and raising cash.

Bullion Daily



Bullion Weekly



Most of the analysis I am reading are stating that the worst is over, the bottom is in and it is smooth sailing.

Although everything is fine in terms of trend-line and moving average support, the chart pattern itself remains bearish.

I have never, ever lost money on a trade based on a positive divergence on weekly stochastics - ergo when I see bearish divergences I am, to say the least, "cautious" about adopting a buy and hold mentality.

HUI



The chart is in an overbought condition - hardly the best technical juncture to initiate positions.

HUI Short-Term EWA Count



This count seems to be holding for this leg. Given the above charts this seems like a good place for wave 3 to end. If this count hold true then we should get a pull-back to relieve the ovebought technical indicators and then one more leg up to finish the impulse.

Last week I had a target of 230 for the entirety of wave 5. Taking another look at things I would say 240 would now seem a likely target.

How this impulse ends is almost as important as the retracement that will follow. If the impulse completes in equally overbought conditions then (despite "short-term" bearish condition) it would actually bolster the long term bullish view in my opinion.

If we get only marginal new highs accompanied by bearish divergences then one shouldn't be as agressive in buying the pull-back.

An Index to Watch - Housing Index



Contrary to the popular view, I believe the last thing gold bulls want to see is a collapsing housing market. To me it is no coincidence that both sectors rose while general markets were crashing...they live on the same
fuel.

Greenback



You have to go far and wide to find any kind of bullish commentary on the dollar. The prevailing wisdom on the dollar is to bascially "stick a fork in it".

I will stick my neck out here and say the dollar is still capable of unleashing some nasty surprises between now and the election/inaugeration period.

Much of the current situation around the dollar reminds me it of the gerneral equity markets in March 03. No shortage of reccomendations to take on massive short positions, of grand wave 3 of 3 down moves and waterfall declines. Of course those who traded on that basis with no protective stops, are still trying to get the tire tracks off thier faces.


Bonds



Another chart to keep an eye on. Last week I displayed charts which showed how all meaningful countertrend rallies in the dollar were accompanied by drops in bond prices.

The uptrend in bonds is still in place, but the chart is showing signs of rolling over.

Miscellaneous Items

Stock indexes in general saw some bullish reversals last week - given seasonality and the fact that market has been Pavlovian in its belief that the current crop of misfits is actually good for the markets, equities look to do well.

Again contrary to popular mythology this is good for gold equities. The last thing gold bulls want to see is a market collapse.

Discussion/Trading Strategies.

Again my view of the market focuses on the short-term. Making declarative statement on IT movements, is at this point, highly speculative until we see what happens once this impulse ends.

Now for short-term trading, the trend is up but the condition is overbought. The Macclellan Oacillator, although not an extreme level, is near the upper end of its trading range.

So I expect a pull-back in the near future. If it doesn't morph into something more serious, it should give opportunities to put in some swing trades to make some money before a retracement of the entire leg ensues.

What happens after that will determine whether this is the first impulse of a major upleg..or the final leg of a countertrend rally.

Bullet Bullet Bullet