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-- Posted Thursday, 7 February 2008 | Digg This Article | Source: GoldSeek.com
2-7-2008
What now?... As expected, the rate cut euphoria has already worn off. “Suddenly” the financial markets are very concerned about the lack of liquidity in the economy. It’s almost funny, maybe tragic is a better word. The “next dropping shoe” appears to coming in the way of credit card debt. Interest rate increases on credit cards are now taking place. Rates jumping 3% or more are becoming common. Given that many Americans are overly burdened with credit card debt, this could soon become a very serious issue. Expect it to become headline news. Inflation…. Gold and silver are once again being forced to adjust to a number of issues: Grain prices are setting record highs. The US Dollar may have bottomed out against a number of key currencies. This doesn’t mean it has to rally a lot. Rather it means the Dollar may be through falling and will drift sideways to higher in the near term. Crude Oil prices are drifting lower, as traders worry that the US economy is going into a full blown recession. Stock prices are collapsing again. Interest rates are falling once again. Seasonal Gold Trend… Let’s look at the Historical Gold Chart below…….
Over the past 15 and 34 year periods, gold typically rallies into early February and breaks down into March. I see little in place now to alter what has historically taken place. Gold had a chance last week to move higher. April gold attacked its contract high this past Friday and quickly reversed down after failing to make a new high. Within 3-days it lost nearly $53. I believe that a short term high is now in place. April Gold Last week I recommended taking a position in an April Gold Call Spread. Those that followed my recommendation put the spread on in the morning and liquidated it by the close. I don’t recall ever being in and out of Call Spread that fast. My technical analysis turned that fast. Let’s see why.
The gamble as I saw it last Thursday, was for gold to simply “hang in there”. All that prices on Friday had to do were to close higher or near unchanged for Stochastics to embed. Embedded Stochastics are one of the strongest and most reliable technical trading tools I know of. When an Embedded Stochastic develops, it means the trend is getting stronger in the direction the market has been going. Last week that meant higher gold prices as April Gold was approaching its contract high. On Friday prices had what is called an “Outside Day Down”. Price action took out both Thursday’s high and low and closed lower. In the process, an embedded Stochastic was denied. This left gold simply overbought. As such, a move down was in the cards. As you can see, prices did what they had to in order to alleviate an overbought condition that occurs when Stochastics don’t embed as prices are rising. In order to alleviate the overbought status, prices must break and break they did. In my opinion, the market is now in the process of looking for a zone to bottom out at and from there, develop at least for the near term, some sort of trading range. Given that historically speaking the seasonal trend doesn’t bottom out until March, I think we alter, at least for the time being our previous highly aggressive bullish stance. Yes, I am still bullish. However the chart action isn’t so we alter our strategy and look to see what the market offers up going forward.
Conclusion and Recommendation Here’s what I wrote last Thursday. “If Stochastics embed, I think a long position in April Gold is warranted. In fact, a move over 934.0 on Friday will be a signal for a test of the contract high of 942.2.” As it turned out, Friday’s high was $941.8. Right now prices are looking for an area to bottom out at. On Tuesday a low of $888.4 as hit. There is downside bias and no reasonable risk-reward, at least the way that I read charts, at this time in gold. So what do I recommend? The answer is pretty simple. I watch to see where the next opportunity shows itself. Right now, I don’t see one but expect that will soon change and will keep all advised in my twice daily comments that I send out by e-mail.
Silver Let’s spend a moment or two looking at a Daily Chart of March Silver.
Stochastics are fully embedded. Along with that, the seasonal trend moves up from here until mid-February. The last break low as shown on the above chart occurred on January 22nd at 15.255. That is nearly $1.75 ago. Another way of saying this is that silver has moved up nearly 10% in price in but 8-days. Over the past 8-days those who follow my trades would have been long and hopefully enjoying what is going on. Given that Stochastics embedded today, two things have to be taken into account. First, when Stochastics leave their embedded status it will be time to be fully out of your long positions. Second, right now all of the technical indicators are in place to produce another serious run to the upside because that is what newly embedded Stochastics often produce.
Recommendation Today was great. As many of you know, for many weeks I have been touting a Long Call Spread that those who follow my report were able to put on a while back. I have patiently been sitting, waiting to get you into a position where on a thrust up you could get on the market’s money. Today was that day! In recent past Weekly Metal Reports and in my Twice Daily Reports I have been tracking a spread that followers of my reports should have had on. The long 1625 short 1675 March Silver Call Spread. This spread was recommended and put on at 18 cents. In my morning report today, which I publish at mid-day, I recommended taking 50% profit at 29-cents or better. Fills came in from 29 up to 30-cents. The market closed at 30.3 cents. Those who followed this spread paid $900 for the spread not including commissions and took a 50% profit of at least $550. Not a bad return. Those who follow my Twice Daily Recommendations know that unless I state otherwise, I always recommend two or more contracts. The idea is to try to get on the market’s money, but taking a partial profit and letting the other position run until a final liquidation signal is issued. I recommend liquidating when Stochastics in March Silver turn down. Until than, hold tight. I may even buy more if conditions warrant doing so on a price break of sideways action so keep up with my Daily Reports.
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-- Posted Thursday, 7 February 2008 | Digg This Article | Source: GoldSeek.com
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