-- Posted Monday, 11 August 2008 | Digg This Article
| Source: GoldSeek.com
The inter-state conflict that sparked late last Friday when apparently a Georgian barrage of the break-away region of South Ossetia resulted in near immediate Russian invasion of heavy equipment which has been accompanied by Georgia wide air attacks . Whilst it is not entirely clear of the real truth behind the sequence of events, I am however puzzled as to how Russia could have mobilised such a large force virtually immediately that one would suspect under normal circumstances take literally as long as a week to assemble. Therefore I am leaning towards the Georgian account of events, as clearly the Georgians were tricked into a sequence of events so as the Russians could implement a plan of invasion and potential annexation of several regions of Georgia.
From what I have gleaned upto the writing of this article this conflict does not appear to be heading for an imminent resolution , and clearly signifies a wider objective at play at undermining the Georgian government that had been eager to pursue NATO membership. UN resolutions will prove meaningless as Russia as a permanent member will veto any resolution against it. Whilst US and British condemnation will prove irrelevant given the worlds opinion on the US and British invasion and occupation of Iraq therefore diplomatic pressure will prove infective and futile.
Clearly he only logical outcome is for the Georgians to comply with ALL of the Russian demands as the Russian military can continue escalating the war against Georgia with virtually complete disregard for military losses incurred as Russia moves from targeting the Georgian military infrastructure to targeting economic infrastructure such as the ports and the oil pipeline.
The existing analysis / forecast for crude oil as of 4th July, Crude Oil Seeking Black Swan for Spike above $150 in Overbought State , was for crude oil to make an imminent peak and trend lower towards a target of $110, reacting along the way at $135, and $120, which has thus far proved an accurate road-map as the below graph from the article illustrates. The forecast was conditional on that black swan events outside of technical analysis could change the trend at any point, however analysis concluded that the event which has generated the most chatter in the media of an imminent Israeli attack against Iranian nuclear infrastructure was of an extremely low probability of occurring. The weekend events would also have the effect of bolstering the Iranians as they could play off of the rift developing between Russia and the West to their advantage.
Charts Courtesy of stockcharts.com
However, now clearly the target of $110 has become subject to the weekend black swan event which has a strong potential to bring to an end the technical swing lower as of Fridays close. Therefore this analysis is now to determine how high could crude oil carry on the basis of the change in sentiment as market participants weigh the impact of the risk to the underground Baku-Tbilisi-Ceyhan oil pipeline which can supply upto 1.1 million barrels a day, thus more than enough to impact on oil prices if it is put out of action for a significant period of time, however being underground it would require a deep incursion by the Russians into Georgian territory more so than that undertaken to date and something to watch out for. Additionally a Russian blockade of Georgian ports prevents oil shipments from some alternative routes and therefore confirms an real impact on the supply of crude oil.
The oil price support targets on the way down will prove to be resistance points on the way up, the first resistance level that crude oil needs to overcome is $120, a break of which would propel crude oil higher towards $130. The resistance level of $135 is significantly higher than Friday's close and therefore it is expected to hold. However black swans by their nature are difficult to quantify in technical terms therefore on the chance that should $135 break then that would propel crude oil higher towards $150. On the other hand should crude oil failure to break above $120 would be a major sign of weakness and confirm the longer term target for crude oil of $80 - Crude Oil Parabolic Move Driven by Inflation Hedging that Could Unwind.
In summary, the black swan event implies a high probability of an early termination of the downswing and a corrective rally that is technically targeting a move towards $131.
Gold Current Technical Outlook
My last analysis of gold - Nothing Sweet About Gold, warned investors not to get caught up with gold bug fever by over committing to the precious metals sector and thereby both escalating the risk of losses and impairment in the decision making process, as experienced investors 'should' know that even investments that may seem near 100% certain to prove profitable can end up being big losers, therefore it is important to recognise this fact of a probability of being wrong and to ensure portfolios are not overly weighted in a particular asset or sector no matter how strongly one 'feels' fundamentals support that sector.
Personally where gold & silver is concerned I would limit exposure to 2% of the total portfolio value, to ensure ongoing analysis is unbiased, rather than devolve into a perpetual hunt for sign's in support of gains of a large holding.
Background - Gold has followed the energy sector lower, with crude oil peaking at just over $148, and subsequently declining below its second target of $120 on route to $110 primary target which now looks as though has terminated early due to non technical events, so therefore implies a rally from current levels.
Seasonal Influences - The seasonal tendency for gold is to make a low in July / August for a run up into December. Recent price action matches this seasonal tendency, as gold has declined in August towards its previous low of $846. Therefore seasonals are now bullish for gold.
Charting - Gold Made a lower high in July at $989 which is a sign of weakness as the subsequent decline has taken gold back down towards the $846 low. However there exists a high probability of a double bottom pattern (with a higher second bottom) as long as $846 holds, which given the Black Swan event could be the cue for a resumption of the bull market.
Elliott Wave Theory - EW analysis looks very bearish and implies that the current rally will be corrective enroute towards a further wave C decline to below the $846 low, i.e. probably a decline into the region of $800.
MACD - MACD is both bearish and oversold, therefore implying that the initial swing up will be corrective in nature requiring a further downswing in the MACD indicator.
Conclusion - On balance I am leaning towards a short-lived corrective rally towards $900, to be followed by a further swing lower that on break of $846 would target a move towards $800. The key here will be whether or not $846 holds!
Your analyst always on the alert for the market impact of black swan events.
By Nadeem Walayat
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
-- Posted Monday, 11 August 2008 | Digg This Article | Source: GoldSeek.com
