-- Posted Thursday, 10 April 2008 | Digg This Article
| Source: GoldSeek.com
Gold has finally revealed how volatile it can be by losing more than 100 points in just two days. This was a perfect example on why we took partial profit at the $937.5 level which is a number that has come into play once again as gold tries to hold and close above the $906 level as of this writing. The decline was expected, but agreed, not in such a short period of time. Even professional brokers like me were feeling the effects of the hard punch in the stomach for the core or long-term traders. After a major move higher or lower one needs to examine what could have been done differently and what could have been done to possibly limit losses. Buying cheap out-of-the-money puts as we have discussed in past articles was one viable alternative, and placing stops at the breaking of the trend lines which were at $990 and $966, also could have helped. This could be the level of volatility that accompanies the gold market for the foreseeable future, so the weary need not apply!
So what lesson can be learned from gold’s violent drop? This: Do not think that bull runs last forever even if the fundamentals say otherwise, and take chunks of profit at a time and let the others find the top or bottom of the market.
Daily Gold Chart April 2, 2008 Chart Courtesy of QST
With the meltdown of the gold market one would ask what changed fundamentally. The answer is, absolutely nothing. Therefore the question to ask is what happened technically? Since most hedge fund managers use some sort of technical moving average studies associated with their black box signals there was a mass exodus of fund managers heading for the door all at the exact same time wreaking havoc and creating a “bull in a china shop” scenario. What is interesting is how the selloff actually started. For learning purposes, let’s look closely at the gold hourly chart on March 17th in the June contract. After gold made a new all time high of $1038, the market retreated in an orderly fashion to $1004 and quickly bounced to $1021.5, but could not manage to test the highs, which was the first warning sign that the market was exhausted. The second warning was that gold slid under the $1000 mark to $998.8 and quickly recovered to $1008, which was a lower high than the $1021.5 mark. The third warning and the largest worry was that gold traded under $1000 to $980 and made a miserable bounce back to $1000. Gold broke the key trendline at 990, and the rest was history.
Hourly Gold Chart, March 26, 2008 Chart Courtesy of QST
Gold looks much stronger now that it has closed above $937.5, negating the flag formation, and funds managers should be getting buy signals with the next target of $967.
For Further Advice on Gold Please Click Here
George Cocalis
Senior Market Strategist gcocalis@BrewerInvestmentGroup.com
312.896.3978 or 800.971.2730
Brewer Futures Group, LLC
200 S. Michigan Avenue, 21st Floor
Chicago, Illinois 60604
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-- Posted Thursday, 10 April 2008 | Digg This Article | Source: GoldSeek.com
