Bullion Charts & Commentary
posted Aug 13, 2005 at 01:19PM
Some very nice price action, but it coincides with an overbought condition and bearish COT configuration. I am looking at this action as a trend-line break, not a triangle break-out
This chart is shaping up very nicely.
Looks to reach a key resistance line in overbought condition. There are some minor bearish divergneces in breadth developing as well.
On the whole though the price action supports the overall bullish case
Break above the 200 dma. The resistance trend-line is a hugely significant line in the sand...
Pulling Back the Camera
Breaking this line has historically always been a signal that a major bull leg has arrived. It may reach there from here, but I don't think it will break out on the first try. The internals need to reload first.
Is completing a stochastics and RSI cycle after retrenching after a strong run. The USD should bounce soon. The 50 dma is the metric to watch. Break that and I think we move to new highs, or at least make an attempt to get past 90 to new highs, but with divergences showing up on the weekly time scale.
I am expecting gold to give ground but remain resilient during this phase. A sign that smart money is accumulating.
One last act of defiance...and then back to circling the drain.
Bullion is reaching an overbought condition on the daily time scale. Worse the COT data is extremely bearish in my interpretation, with net commericials forming a very high percentage of overall open interest.
I believe any follow-on buying will be be fleeting and bullion, along with stocks, will begin retracing.
Use this opportunity to get rid of any gold stocks which have not been performing energetically, and re-arm with better gold stock vehicles if necessary. I intend to hang on the stuff that has performed well to date. In my opinion stocks that have been performing well will not retrace sufficiently to compensate for fees and capital gains tax costs.
I wouldn't try to get too cute here trying to time particular stock bottoms. The Iran story is not going to go away. When you look at all the parties involved on all sides, you have to know that this is not going to end well. Watching the PTB trying to spin an abandoned Iraqi soap factory into a global chemical weapons threat - to vindicate the disasterous decision to go to war, just shows how ludricous things are going to get.
I would like to try to get back into the stocks I had originally bought as a trading position, which, of course have continued to do well.
How deep will the correction go? If this is about the dollar finishing off its corrective rally then it could be deeper than most people expect. I would expect it to be deep enough to give off all kinds of technical sell signals to really buck people off. The bears will be yelping about how this was a fake break-out. But I believe the faking-out will be to the downside as the market tries to buck off the timers.
On the HUI I can see 190 being reached. Breaking back down under 200 would really get the dry wood out of the sector. I wouldn't want to see it get much lower than 190.
Here the key is the 50 dma on the USD. If the chart gets back above, then I think we will see new highs. If the 50 dma holds as resistance, then that is all she wrote for the USD.
Things I am looking for is price resiliency in the face of USD strength. I also would like to see the COT moving towards a more optimum buy configuration where net commerical shorts comprise only 20% of the total open interest position.
Energy, gold and cash remain the foundation of my trading posture.
Note: There will no commentary next week-end.