Thomas
DeChastelain
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Bullion Charts and Commentary
posted Oct 7, 2005 at 10:45PM

Bullion Daily



Bullion Weekly



HUI Daily



HUI/Gold Ratio



USD Daily



Discussion

So here is the situation as I see it. From a purely price action perspective everything remains in bullish alignment. There is nothing from a chart pattern perspective that says this isn't the start of a major new upleg.

From a swing trader's contrarian perspective however, the technical condition is horrible. Indeed it is the exact opposite of what was occurring in early to mid May. Here we see bullion has reached overbought status on the weekly chart with bearish technical divergence on the daily chart. The COT remains in historically bearish territory. As well, the HUI's continuing delay in confirming bullion's advance with new highs strikes me as ominous.

It smacks of an impending bear raid coming.

In the past when these kind of technical junctures arrive, the hard-core gold bull will argue, "this time is different". What makes things interesting is that this time they may be right. Bullion price action is rising in all currencies and has been strong in the face of a steady USD. It is certainly not hard to imagine growing "systemic" risks which will drive the herd into gold. Geopolitics continues to favour gold. Domestically? Well as most of you know I despise neoconservative economic theory, and I despise religious fundamentalism. These are the two prevailing idealogies in America today. Until they are checked, they will continue to drive the country towards a state of medieval backwardness.

Trading Strategies

Again, everyone's circumstance is different so please don't take my ramblings as a one size fits all.

As far as gold goes I remain on the sidelines. I still hold a basket of energies, which as a sector, looks to be doing some retracing. This is making me more cautious about feeding more cash into the gold sector at this time.

Again the potential scenarios I see being played out:

One is a "wave 4" type correction that threatens the 450 level but then rebounds to new highs. A more major correction would then follow, but a true impulse would have been confirmed. One can try for a swing trade to catch the last leg up, or wait (a few months) for that higher degree retracement.

If one goes for the swing trade then stay away from speculative fare - stick with trading stocks that have good liquidity and robust RSI's and at least reasonable volatility. You want market depth to show good bid support, and stops are de rigeur. You really do want to finish your first day in the green.

If 450 breaks then stand aside.

What if things keep going up inexorably in a true "wonder to behold" Wave III fashion?. Well my current inclination is to start looking at laggards. There are still some good stocks that have yet to move appreciably. As well some nicely cashed up explorers have yet to take off. I would look at those.

Good trading

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