Thomas
DeChastelain
Memorial Archives

Bullion Charts & Commentary
posted Jul 1, 2005 at 10:24PM

Introduction

Well last week had a little bit of everything...good, bad and downright ugly...not necessarily in that order. I believe the most important characteristic was the solid equity performance in a very difficult environment. This is particularly true on last Friday where the HUI finished up despite bullion being taken out to the woodshed.

Let us look at the charts to see if one can put everything into context and to see if the bullish cause still has a case to be made

Gold Two-Year Chart




As a rule I interpret patterns that look to break out but then negate that break-out to be bearish technical events. Doubly disappointing in that this "throw-over" happened relatively soon after a throw-over in the other direction. This unexpected weakness cannot be easily discounted.

No need to panic as the major trend-line support still holds.

Bullion Daily



Definitely a well-executed bear raid which began only a few hours before the Fed interest rate announcement. Very tricky on the COT data. They loaded up on shorts but not enough to tip thier hand. But early on in the week (as seen in the recent COT report)they really loaded up -knowing the data wouldn't be available until after the raid.

From a chart perspective I feel Friday's onslaught does put the whole thesis, that the up-move from the June bottom being the start of a new impulse, is in grave peril.

I am of the mind that bullion is now still working through a corrective process. A potential EWA count is given. It could be that the correction will end early next week.

Also very possible is another retest of the lower trend-line which corresponds to the 65 week moving average. The latter would certainly clear a lot of doubters out of the gold sector clearing the path for a real bull leg.

Bullion Weekly




It is important to match this chart will the HUI weekly as I feel this will give us much information of what the intermediate term holds for the gold sector.

As we see here, sharp bullion corrections after a bullish MACD crosses is a normal event, and indeed sets the stage for the meat of a bull-leg. This is because before the bull can really get going it first has to buck off, all the bottom timers and momentum players and those who agonized too long to enter, and are now suddenly underwater.

The key is to watch how gold stocks react under the pressure of any follow-through bullion selling. Prior to past bull legs stocks remained stubbornly resilient.

In other words we need the bullish divergent action seen on Friday to continue while bullion sorts itself out.

As a side note, bullion charts in terms of the Euro, Rand and Japanese yen remain robustly bullish.


HUI Daily



Friday's price action was very encouraging. Bullion getting creamed made it very easy, for those inclined, to ditch thier positions. That firmer money came into the market and bid stocks back up into positive territory is as constructive as one could wish for. With some dry wood now out of the sector, it is well placed to move up. I think this will require a little cooperation from bullion though.

HUI Snap-Shot



Just some short term metrics for those who are in trading mind-sets. The 18 ema seems to be the short-term support metric. It is a fairly tight stop. If you are more worried about getting whip-sawed then waiting for a 18 under 40 cross is another techncial event you may want to use as a sell signal.



As discussed in the bullion section above.

HUI/Gold Ratio



The most bullish aspect of the gold sector right now.

Backing up a bit...



In the bigger picture we see how there is still a lot of heavy lifting to do.

Darth Vader Daily Chart



The USD remains overbought. The charts continue to sport bearish divergences. The price continues to forge higher. Worse was that Friday's surge coincided with a sell-off in bonds. If you remember that was on the list of things I did not want to see.

One day does not make a trend...but it is a red flag

Of course the story of choice right now are interest rates. There is no sign that the Fed is going to stop their measured rate hikes any time soon. At the same time there is growing pressure for Euro rates to decline to help reinforce stagnating economies. It is a compelling case for dollar bulls.

On the other hand the overbought condition, along with COT data at extremes, all point to at least some consolidation/reversal action.

Dollar Weekly



It does look like a wave 3 of some degree is under way.

Discussion/Trading Strategies.

Gold is of course a complex sector with many, many factors. Not only it is very difficult to consider them all, but next to impossible to ascertain their relative importance in influencing future price movements.

In the end the first thing I look at is relative performance of equities to bullion. Rare are the times when outperformance does not result in bullish outcomes.

Watching how stocks do under any follow through bullion selling/dollar strength is the key element I will be watching.

I remain bullish on the gold sector, but there are enough signs to suggest that some time considering exit strategies is not time wasted.

In my personal context the use of stops would apply only to initial postions obtained, which at the time, were meant as trading positions. If I do get whip-sawed, (sector reverses after bucking me off) - I would reenter, putting those profits back into a basket of seond-tier stocks which have yet to move appreciably - all on the premise that all boats will eventually rise.

Two of my stocks I intend to hang on to. I like my entry points and I like the companies. And given my view of where the world is heading I would feel very uncomfortable not having any exposure to gold at this time. I also hold speculative energy stocks. I also have 50% of my portfolio in cash - this latter in case everything circles the drain. Gold, oil, cash. As you can see I think "interesting" times are coming our way.

Good trading,

Bullet Bullet Bullet