Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted May 29, 2005 at 11:40AM

Gold Daily - Hanging in There



HUI Daily - Looking Impulsive



HUI - A Closer Look



USD Daily - Looking Toppy



USD Weekly - Still on a Buy signal



(Note: The "red" arrow below the bull kiss on the MACD should in fact be green - oops!)

Discussion - Trading Thoughts

Well for the first time in what seems many moons I actually have some exposure to gold equities. Not a lot. As mentioned priviously I already have 30% exposure to "inflation_friendlies" through energies and I want to keep good cash levels in case of "suprises".

Having said that things are looking up in the short term for the gold complex. First to look at the dollar. On a daily basis it right up against strong channel and price resistance. A lot of technical momentum indicators are sporting bearish divergences off of overbought levels.

The COT data, in my interpretation, is also bearish towards the dollar. the commercials are literally piling on with added short positions on the USD and long positions on the Swiss Franc - all signs of impending strength and support for bullion.

Again none of this has yet translated into bearish price action for the dollar, and with the French Euro vote acting as a wild-card, one cannot predict the future - however from a purely technical point of view this seems to be text-book circumstance to initiate dollar short positions.

Another harbinger has been the multi-day outperformance of gold equities. To me breaking the 18ema should be interpreted as, at the least, a short-term buy signal - and so far so good.

From an EWA perspective the move up to now clearly has an impulsive look to it, suggesting that dips should be corrective and will be bought into.

Now a lot of stocks gapped up, and some of them may get refilled, and I would think that kind of occurrence would provide lower risk entry points.

Now this is short-term - days to a few weeks. How about longer time frames? Were the recent lows a true inflection point? On that regard I can only contribute postulation. From a technical point of view the gold sector has a lot heavy lifting to do to get itself into a reestablished bull trend, and during that time one won't really know if we are dealing a bounce-back rally back to previous support levels, or the start of a major upleg.

This is mirrored in the dollar chart. A pull-back definitely looks in the cards. But how deep? A retest of its 200 dma would take care of a lot of its overbought technical condition. One would want to see what the commericals are doing at that point. If they are still short then that would suggest that fundamentals are finallly reasserting themselves. If they turn positive, then it would be a sign that the suits are winning and the gold sector really is in for some long term pain.

A similar, but not identical thought process would occur if the USD came back down to lower channel support.

So right now I am expecting gold to do some backing and filling early in the week, probably coinciding with a "knee-jerk" market response to a French "no" vote. After that we should start working our way back back.

Again even if you are bullish on gold, there is no rush, contrary to popular myth, to jumping on board, in fear of "missing the boat". The next upleg in gold will be a multi-year affair with a lot of the gains near the end. There will always be opportunities for good trading entry points in this circumstance. But until that upleg is firmly established I think prudence, through risk mitigation, is still a high priority here.

Until major trend-lines get broken I prefer to act as a short term swing trader with tight stops. After and if those trend-lines get broken then positions would be viewed as longer term holds.

Good trading,

Bullet Bullet Bullet