-- Posted Thursday, 21 May 2009 | | Source: GoldSeek.com
Will This Upmove Last
As I wrote last week, seasonally speaking, rallies can and do occur during May, with the second part of the month often turning weak. August, historically speaking, is a better seasonal time for a longer lasting rally to grab hold one than ones that occur in May, June or July. However, when rallies hit at this time, they often do so in a quick manner.
So far, the mid-may rally is taking place on schedule. Weakness, at least on a historical basis is expected to set in the last week of May or close to it.
The chart below was supplied by The Moore Research Institute.
Gold Rallies
In last week’s letter I wrote that Gold was in an uptrend. Those following the market know it still is. In fact prices in June Gold have not been under the 18-Day Moving Average of Closes since May 1st. Since that time gold has rallied nearly $50 an ounce.
The Stochastic Study is what I use to measure market momentum. I use three stages: overbought, oversold and getting stronger. I call the “getting stronger stage” the embedded stage. This stage occurs when the two lines that make up Stochastics, the K and D Lines, both have an over “80” scale reading for a minimum number of days. You’ll see this on the June Gold Chart lower down in this report.
Current price action projected prices rallying up to the Bollinger Band Chart Top, which was hit late today. The way I teach using Bollinger Bands means that long positions should be trimmed back against this top and replaced on breaks. The replacement is contingent on Stochastics remaining embedded.
The Stock Markets and the US Dollar
In the past few days, most stock indices broken sharply, while at the same time the US Dollar has broken down. This powerful combination is not being lost on gold. Gold often rallies when the Dollar breaks and at times, invertly ties itself to the stock market. In the current stock market cycle, part of the reason for the gold rally has to do with the perception that there is more unknown ahead of us. If this is correct, the thinking is that gold will benefit from either a run to safe haven investing or an increase in inflation, which is often seen at the beginning of economic turns.
My belief is that next big gold’s “story” will end up centering in large part on anticipation that inflation is going to pick up, not because of “safe haven” investing.
Daily Chart
In last week’s report I stated that the June Gold Chart had established itself in a short term uptrend. The upside price objective is the Bollinger Band Top, which I have labeled on the chart below.
On the bottom of the above Gold Chart is the Slow Stochastic Study (SSTO). It is embedded. Last week it was in the transitioning process, since at that time it was overbought which means Stochastics either could have broken down or gone on to embed. It embedded which means the K and D Lines both stayed over “80” for 3 or more consecutive days.
Emebedded Stochastics imply inate strength. Until the red line, the “K” line of Stochastics turns back under 80, the market remains embedded, which is bullish. Once the K line closes under 80, a test of the 18-Day Moving Average or the closest of the 18, 45 or 100-Day Moving Average of Closes under current market prices is likely.
Conclusion and Recommendation
Last week I stated that my bias was clearly bullish.
I feel the same now. As long as Stochastics remain embedded I would continue to recommend buying breaks. Once Stochastics lose their embedded reading on a closing basis, I would get out of long positions and buy a Put, in anticipation of a test of the 18-Day Moving Average of Closes.
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-- Posted Thursday, 21 May 2009 | Digg This Article
| Source: GoldSeek.com
