Bullion Charts and Commentary
posted Nov 21, 2004 at 03:27PM
Bullion had a gang buster week. Not only did it confirm a triple top break-out, it is well on track to breaking out of a multi-decade trading channel. Although individual stocks had good weeks, equities on the whole, were on the soft side. On a personal trading note, I took profits during the week when the HUI slipped under 240.
The HUI recovered quickly and regained that level, so on the whole, the picture maintains it bullish outlook.
Bullion has been a real juggernaut. 430 is now the key support line. Are we looking at a parabolic melt-up? Or will there be some backing and filling?
Gold Long-Term Break-Out
If gold finishes the month in this general area then we have a break-out of a generational nature.
If you read last week's commnetary then you will remember that I was of the mind that strong bullion prices should result in a break-out of this ratio.
That it didn't happen in the face on new highs is a bit of a red flag. As long as it stays above its 50 dma though one still has to expect that this would eventually resolve to the upside in the face of rising bullion prices.
Fundamentally, when you look six months out, it is very difficult to conjure up a scenario where the dollar will be stronger. No indication of "systemic" forces coming to the rescue, like synthetic short squeezes or carry trade reversals have yet to materialize.
Geo-politics? That is a whole essay in itself. Iran seems to be a replay of the Iraq pre-war hype. The campaign on Afghanistan opium fields will likely result in open geurilla warfare with the war lords. North Korea rhetoric is being pushed up. In Iraq they continue to use the same tactics as offered by thier Israeli advisors, and no surprise, are obtaining similar results.
Worse the recent appointments and personnel moves at the White House and CIA show that group-think is going to be taken to new absurd levels.
The dollar is oversold, not only on the daily, but on the weekly and monthly scales. It is in a technical condition that has resulted in some kind of bounce in the past.
On the whole though, unless we see some price reversal action sufficient to put in a MACD cross, the measured move target of 80.27 still stands as a likely short-term projection.
The question I am pondering is whether I placed to much importance on the 240 level. Did I get shaken out? My interpretation of the event is pretty conventional..when you have a break-out but the pattern fails and moves back below the break-out point - is usually a bearish event. The profits were there to be taken..so why not.
I think a mistake a lot of people make is that once they take profits they tend to forget that stock or that sector. If subsequent price action shows that the trend remains in place one should not have any problems with getting back in..maybe in new stocks or even the same one after it has done a standard retracement. As long as the stock moves up after you buy it.
Now going forward a key chart to me is the HUI/Gold ratio. I want to see the 50 dma hold, and I want to see the ratio go up. A break upwards of the consolidation pattern is a bullish buy signal...or if entry positions have been taken before that, would be a confirmation signal.
Obviously, in the ultra short term I would want the HUI to hold over 240.
With gold looking to go parabolic my thinking remains to buy strength ... no I don't mean buying a stock that is overbought or has had a huge spike..but to buy bullish breakouts ... bounces off support...crosses over the 200dma.
Weakness should be shunned. This is not a contrariarian bottom-picking environment, in terms of entry point. I am looking at some juniors that have not as yet particpated fully - if they show signs of life or seem to be developing good bid support, they they would be worth a go.
It would be very nice for bullion to do some backing and filling and retest the 430 level and allow the USD to work off its oversold nature; but I have the feeling the market will not be so accomodating.
With a gold on the verge of going parabolic I remain a supporter of tight stops to guard against reversals.