Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted Oct 24, 2004 at 11:56AM

Introduction

The last few weeks saw me selling short-term positions into equity strength. These included some golds, a nickel explorer, and a basket of energies. With the exception of one energy stock, I am sitting on cash.

The question going into next week is to determine the circumstances under which it would be prudent to enter into a new series of trades

My current view of the gold sector is that it has completed an impulsive leg up. Whether the sector is now consolidating in preparation for another impulsive leg up, or getting ready embark on a C wave down of a larger order ABC correction, is the question du jour to my eyes.

I think you will find that the following charts paint a fascinating market picture.

Gold Daily



Trend is up. Moving averages are all in bullish alignment. On the other hand gold is at the top of a well-defined trading channel. As well some of the technical divergences that appeared two weeks ago on the HUI have now appeared on the bullion chart (no surprise as stocks have been leading bullion)

On first glance my instinct is that bullion will now duplicate HUI chart action of the past two weeks, and at the least consolidate.

Gold Weekly



Here again the weekly stochastics are at a condition which in the past has resulted in, at the least, short-term pull-backs. Although the overlapping nature of the advance since the May bottom has been a short term trader's delight, it still strikes me as having bearish connotations on an IT time scale.

HUI



The bounce back from 240 along the MACD rolling-over puts the HUI in short term bear mode. What I will be looking for, sector wise, is a reversal coming off some support metric.

HUI Short-Term EWA Count



Although I truly like looking at chart patterns in terms of impusive or corrective waves, it must be repeated that I am a real hacker when it comes to the actual counting.

Again right now it looks like an impulsive leg has been completed..followed by what, so far, looks like bullish countertrend action. If the count above is correct look for one more "c" leg down to finish things up.

USD Daily



I know..I know. As someone who has been expecting some kind of C wave up, recent price action in the greenback has been nothing short of disgusting, as it has enthusiastically mapped out a classic "limp dick" chart pattern.

The best that can be said for the USD is that the RSI in now in oversold territory and stochastics have also bottomed out. I have no objective figures but I think it is safe to assume that the dollar is not suffering from an excess of bullish sentiment

Commercials do have a large net long position on the dollar as well and are net short the swiss franc.

Unless it gets big help from bonds and oil the best that can be hoped for is a bounce back to 87 to confirm that it is now resistance. That would seem to fit in well with bullion and gold stocks consolidating.

USD Weekly



The C wave theory is not completely smashed, but it is obvious that it is going to need lots of cooperation from the oil and bond markets ...(see further below)

Long Term Gold and Dollar Charts

Just some charts to keep in the back of one's mind.





As mentioned above no sustained strength in the dollar can be expected unless oil and bonds start rolling over. So a look at the charts

Crude Oil



Well the oil chart is looking toppy and is due for at least some kind of correction. Stocks (XOI), as of yet, have not confirmed the commodity price higs.

Historically oil has also had a tendecny to lag gold in reaching important tops by about 11 months

If gold does reach new highs before oil undergoes it's inevtiable pull-back, then that correction will be a no-brainer to buy. One should have a basket of stocks on one's watchlist to take advantage)

Bonds



Unless it breaks trend-line or moving average support, bond perma-bears will continue to pull their hair out.

DISCUSSION/TRADING STRATEGIES

Well as I try to sort out the tea leaves I think there are three contingencies one should be prepared for.

One - Further consolidation. Bullion is in a techical condition that consistently over the past years has resulted in tradable pull-backs. During this bullion pull-back the HUI should, at the least, complete it's own correction.

The dollar in the mean-time would retest 87, and in a bullish (for gold) outcome, confirm that that level is now resistance.

A nice signal would be a close over 87 and then a drop back below...with 87 becoming your stop.

Sector wise (HUI)you are looking for a bounce off a moving average or horizontal support with confirmation coming from a MACD cross....have a basket of stocks under surveillance and pick the ones that are still bottoming.

If 87 is confimred resistance we then have a measured move target of 83 for the dollar, but things should really start heating up for gold stocks once 85 is taken out.

Two - Gold starts melting up. This on the premise that the dollar just keeps sinking. For me I would not have a basket of stocks...but just one or two. Very high liquidity, high beta, no "issues"...there are a few candidates right now where the charts are tracing out bullish pennants and with stochastics bottomed out. Depending on how things start I may buy in right away although the more coservative play is to wait for a pennant break-out.

Three - The USD pulls off a Red Sox come-back. For that to happen, oil and probably bonds would have to do a copper syle implosion. Obviously I would stand aside and play that by ear.

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