-- Posted Friday, 6 July 2007 | Digg This Article
7-5-2007
Foiled terrorist plots in England this past week helped to rally gold and silver. Today gold and silver had to deal with the fact that no new terrorist activity occurred over the 4th of July Holiday in the USA. Any “terror premium” that was put into the markets on Monday and Tuesday, was quickly removed by market participants today.
The bulls are left facing the fact that right now there’s simply no “story” that seems capable of currently sustaining higher prices in gold or silver. The US Dollar has fallen sharply, but it has not created an uptrend in either of these metals, which I find to be a disappointment to the bulls. At the same time the US Dollar broke energy prices have rallied sharply. I think you’d have to admit that even this combination has not been able to impact gold or silver pricing very much. Therefore, I think it safe to say that outside events that just 2 months ago would have rallied both sharply, are immediately capable of having a bullish impact on prices. This of course could change, but that change apparently isn’t at hand yet.
So the question becomes one of: “What happened to these markets bull market psyche”?
The answer is that it’s temporarily gone. If you look at the charts below, you can see where prices feel apart. The good news is that since the break down, both rallies and further price breaks have moderated. From this moderation is most likely where the market will decide the next price trend. Right now, the overall sideways action is simply the way the markets way of spending time, waiting to see what trend next develops.
The big news is that the Daily Chart is no longer bearish. It lost that when prices rallied through 659.5, which created a pattern of higher highs. The problem is that the rally has had no legs under it. Prices are down sharply since the latest rally.
The Weekly Chart remains bearish and will do so until prices get back over 660.8, but hey…bull trends begin on the Daily Charts and move from there to the Weekly Chart. So the key is to first look at the August Gold Daily Chart to see what is going on.
Below, on the Daily August Chart below, I have overlaid 4 studies:
- Swinglines…a proprietary tool I use to determine Trend and Dollar Risk associated with being in the trend...this is shown in Yellow
- The 18-Day Moving Average of Closes…shown in Red
- The 100-Day Moving Average of Closes…Show in Green
- Slow Stochastics…the graph at the bottom of the chart below
As you can see, prices are under the 18-Day Moving Average of Closes (654.8) with a last trade price of 651.4. This is not bullish.
The Swingline Study, shown in Yellow, is one of making higher highs, with the most recent high being 661.3. This pattern is Bullish unless prices back under the most recent Swingline Low of 641.1, which would change the chart pattern to a Bearish pattern, which is one made up of lower lows.
The 18-Day Moving Average of Closes is under the 100-Day Moving Average of Closes. This is bearish.
Slow Stochastics (SSTO) are neutral with a reading of 48.65.
A move back under the most recent low of 641.1 would be a new Bear Signal that would currently carry too much of a dollar risk to get short off of.
Last week I said that if got over $659.6, the short term trend would change. That occurred and changed the Swingline pattern to one of higher highs. However, prices quickly feel back to and back under the 18-Day Moving Average of Closes, which neutralizes the Bullish momentum. To resume the uptrend, prices have to get back over the 18-Day Moving Average of Closes and must start making higher highs, which would be done by pricing getting back over 661.3. This will not be easy as that is nearly $10 away.
A Bear Trend will resume if prices break 641.1, but the dollar risk in selling under that price is currently to 661.4, a near $20 move, which is much too much risk for me to consider.
In summation, at this time August Gold is caught in a $20 trading range. The top of the range is 661.3 with the bottom of the range coming in at 641.1. No matter which way prices break out, the initial dollar risk in following the trend will carry initially to much risk for me to recommend my customers take on.
We need to see the trading range narrow in much more before making a trading decision. It matters little to me if we are going to be Bullish or Bearish. The key is to have momentum on your side and a dollar risk you can live with. Neither of these elements are present right now.
The last observation I have is that prices recently don’t seem to want to extend much to the up or downside. Intraday extremes seem to get cut down sharply by the close. This is part of the basing I make mention of above. The longer this goes on, the better chance of us catching a trend play, one prices break out of their trading range.
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Silver remains both oversold and in a Bear Trend.
Look first at the Swingline Study as shown as a Yellow line. It currently has a series pattern of making both lower lows and lower highs, off attempted rallies. Until things change by prices taking out the last rally high, the trend will remain down. Given the current Stochastic reading under 30, the trend is down but oversold.
You can easily see what I see by looking at the Daily Chart of September Silver below.
Last week I said, “I would rate the chance of silver instantly turning into a Bull Market at less than 1 in 20. In other words, a hard rally will be a selling opportunity.” So far that doesn’t look too far off the money.
If prices were to get back over the most recent high of 12.785, that would neutralize the Bear Market. A Close over the 18-Day Moving Average of Closes, currently at 12.898 would be bullish.
Due to Stochastics having a reading of under 30, but over 20, prices are simply oversold. This oversold condition prevents me from recommending a short sale with a stop just over 12.785.
In summation, there is nothing to do. I don’t want to recommend selling into an oversold condition and the chart pattern is presenting no potential buying conditions just yet.
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-- Posted Friday, 6 July 2007 | Digg This Article
