Thomas
DeChastelain
Memorial Archives

Bullion Charts And Commentary
posted May 14, 2005 at 02:42AM

Introduction

The stench of deflationary forces permeated the markets last week, leaving the gold sector taking a good long hard look into the abyss. Think Indiana Jones hanging on by his fingernails.




Despite all the exclamations, from purely a technical perspective the bullion triangle has not broken down and is still within the realm of "throw-over"

As we will see down below though , the continuing underperfromance of equities does not bode well. The bulls need to see a vigourous snap-back to keep triangle integrity intact. Otherwise a meaured move to 380 is a very strong possibility.




Gold rest near major trend-line support. Momentum indicators are definitely in downwards trend.






The short-term price action remains horrid. From EWA perspective the step-ladder decline smacks of a series "1-2's" being put in. No resistance lines are being broken.

We are definitely in knife-catching territory here.



The ADX captures the potential opportunity and the real risk. There has been no real strong selling or panic, just a complete dearth of buying power. The latter is usually a contrariarian indicator...buy when no one else wants to. Timing is the big wild-card here. A break-down of bullion can lead to real selling. If the buyers don't step in then things have the "potential" to get ugly very quickly.

Things are oversold...but not that oversold.



Nothing to do but wait for a test of the 200 dma to see if the charts confirms that metric as new support, or whether it fails and goes back under.





It is important to remind oneself that in the currency market, even small "bounces" can be multi-month, indeed multi-year affairs.


Trading thoughts.

Let me start with a definition. To me an investor is a speculator who deeply regrets not having used stops and is now holding on to large paper losses.

The most bullish thing that can happen is for bullion to have a strong snap-back rally back over its 200dma. I think that would be a good entry, with a point slightly above the trend-line becoming your stop. (I think if it breaks the trend-line it is becasue gold is taking a swan dive)

In other words I have changed my mind from last week. My stops would not be "reasonable"...they would be anal.

I would buy only on some kind of resistance metric being taken out on the hope you are catching a break-out.

A bullion move down to support at 415 which results in a snap-back is much tougher to call. It could be a true inflection point, or we could simply be bouncing back to the trend-line to confirm that what once was support is now resistance.

The prior and continuing underperformance of equities puts a pall on the whole sector. For myself I still have zero exposure to golds. My overall thoughts are to stand aside until I see bullion at a nice discount to its 200 dma (very oversold) or until I seem some resistance barriers being taken out.

Bottom picking without the benifits of market depth information is really shooting in the dark.

Good trading,

Bullet Bullet Bullet