Thomas
DeChastelain
Memorial Archives

Bullion Charts and Commentary
posted Nov 19, 2005 at 02:02AM

Bullion Charts

Bullion Daily



A moment of maximum terror for speculative short positions.

The latest COT shows that the percentage of open interest comprised of commercial net short positions to be at an unprecedantly high level. According to techncial indicators.com a good chunk of bullions surge occurred on declining open interest. In other words bullion was pushed up by fewer people who were willing to pay higher prices. I interpret this as a bearish divergence.

Bullion Weekly



As a contrarian I still do not like buying back into this chart.

Bullion Monthly



The measured move for the channel break out is in the mid 600 range. The price action has been outstandingly bullish. The technical indicators are in a bearishly divergent and/or overbought set-up indicating that at least some kind of dip is due.

Bullion/Dollar Ratio



A very compellingly bullish chart.

Gold Equities

HUI Three Year



I admit I am a bit hypersensitive to equity underperformance. During the past two years it has allowed me to escape the downdrafts. Longe time readers will remember however that I also discussed what happened when the HUI finally did break out from the 150 level after several attempts. That very well could happen here as well. But the proof remains in the pudding.

HUI Daily



The HUI had some nice price action with bullion's surge. It would have been "neater" if it surpassed the end Sept highs. It didn't. Basically for all the seemingly frenetic activity of the past two months the HUI ends near the same level where I sold my last gold stock.

McClellan Oscillator

End Sept highs approached again, but on declining breadth. I interpret this as a bearish divergence.

HUI Weekly



I should have annotated the chart. Notice the similarity to the situation today to that of July 03. Ugly internals aside, price action is the final arbiter. What are bearish divergences in a corrective market suddenly gets transformed into the realization that there is lots more fuel in the technical gas tank and that there are a lot of stocks that have to "catch up".

HUI/Gold Ratio



Has "nosed" teasingly into bullish territory.

Currency

US Dollar Daily



US Dollar Weekly



US Dollar Monthly



In its perverse fashion, the US Dollar technical setup is analogous to gold. Excellent price action, being mitigated by overbought and bearishly divergent momentum indicators.

Like bullion the COT for the dollar is also very bearish with the commercials holding record high short positions.
Weird weird weird.

Miscellaneous

One internal that favours the gold bulls is site traffic or the relative lack there of. Looking at the site traffic of the two main gold sites, 321gold and gold-eagle, one finds it still sloshing along a chart bottom. Site traffic is nowhere near the euphoric peaks in late Dec 03. That suggest that there is a large herd of potential investors out there who have yet to participate at all.

Discussion.

I do not want to do a complete rehash of all the bullish and bearish factors as I see them. In the end what I cannot tell you is which criteria will prove to be the key ones to watch.

My own rule of thumb in these situation is that the price is the final technical indicator and should get the highest precendence.

There are three scenarios possible as I see them.

One. The dollar reverses and bullion accelerates hopefully with stocks finding religion as well.

Two. The dollar continues to surge and gold collapses into a full fledged retracement to reload on technical fuel.

Three. In the same way that gold and the dollar both rose in tandem, they both reverse and decline in tandem.

Trading Strategy.

Basically for all the seemingly frenetic activity of the past two months the HUI ends near the same level where I sold my last gold stock.

What I have done is move cash from previous gold trades, as well as some from oils I recently sold, and moved it into the launch bay to buy another basket.

What I am watching for of course is a breakout of the HUI, preferably with a weekly close of 257 (3% above 250).

I am not going to chase leaders here. A breakout of the HUI greatly enhances the odds of a major wave III type upleg. One of the potential benifits of the weak breadth to date, is that there is still a number of reasonable names which have barely moved and should provide good potential percentage gains.

A lot of explorers are still in flat-line basing mode. In the last major upleg off of the 150 (HUI)level, the explorers took a month or two to get going. Shooting the right darts in this group can do amazing things for one's portfolio.

Again this is not a contrarian environment anymore, but a momentum one. There are a lot of things about the sector techncial condition that I don't like. But if the HUI breaks out then the plan is to put on the nose plugs and rubber gloves and buy back in.

As a contrarian I feel most comfortable in bottom-picking. There momentum indicators and divergences play a greater role. The trap is in a trending, momentum environment paying too much attention to condition can leave you to sell even as price support trends are in place.

I still hold energies and will maintain high cash levels in case we are looking at an overall blow-off in general market equities.

Stops are de rigeur

Good trading.

Bullet Bullet Bullet