-- Posted Thursday, 1 October 2009 | | Source: GoldSeek.com
Seasonal Story
The chart below is shown with permsission of the Moore Research Institute.
You can view their website by going to: http://www/mrci.com
The past 35-years of history show that October is typically not one of gold’s stellar months. History and seasonal patterns do not have to repeat themselves. This tool should be used in conjunction with other charting tools and not used by itself.
US Dollar
I was just reviewing my comments from last week. Here’s how I started out; “The US Dollar is seeing short covering. The rate of its break slowed yesterday. In fact prices reversed after Wednesday’s FOMC Annoucement. However, other than some normal short covering, not much looks overly long term bullish on this chart. A rally up to the 18-Day Moving Average of Closes might develop, but it would take more than that to turn this chart bullish.”
Now, a week later, the market has rallied is now trading either side of the 18-Day Moving Average of Closes. Each day over the past 5-days has seen prices hit this number. Resistance comes in at 77.65, the current Bollinger Band Top.
A number of countervailing forces confront the Dollar. At the upcoming G-7 Meeting the declining value of the Dollar will surely become a center of conversation, as will the fragility of the economic recovery both here and abroad. I seriously doubt that the Dollar will be under much selling pressure going into this meeting. If anything, it may get a bid. Afterwards…..?
The US Government today released data that shows US Workers filing new claims for jobless benefits increased more than predicted. Yesterday’s Chicago Manufacturing Managers Index came in much poorer than expected even though New York’s same report showed growth. Germany today reported that German Retail Sales fell in August by 1.5%, reversing last month’s rise of 0.7%.
On the positive side, according to Challenger, Gray and Christmas, the monthly layoff announcements in the US fell in September to the lowest level since March 2008.
It appears that countries other than the US are marking plans to or actually have begun to raise their interest rates. This brings investors to those currencies if the economy stays stable.
The point being made here is that I don’t see a lot on the table to make the Dollar suddenly become a longer term bull market. Short term trends do change regularly and for the moment, the Dollar is getting a bid, which means it looks like the Dollar wants to work a bit higher. I just don’t see it moving substantially higher in the near term.
The current chart pattern is one that has me expecting to see the Dollar find the 76.90 level as a general support level. If prices were to break through 76.68, the trend would again turn down. Until and unless that occurs soon, I look for the Dollar to struggle, but work slightly higher.
Keep in mind Iran. If the situation with Iran heats up the Dollar may be looked at as a “safe haven” investment. On the other hand, if economic data comes out that shows foreign economies are picking up steam, risk appetite will pick up and the Dollar will come under selling increased pressure.
Daily Gold Chart
Gold doesn’t always go up. It may seem that way after last month, but the reality is that it doesn’t. The current move up culminated with December Gold hitting a high 1025.8 on September 17th.
Since the high was made, prices have sunk to 986 and are currently trading against the 18-Day Moving Average of Closes, 1004.4. Upside momentum is lacking as it should according to the Seasonal Chart displayed at the beginning of this report. In addition, each high has been lower than the immediate preceding high, a sign that upside momentum is waning.
The big question of course is whether or not gold follows its seasonal pattern of lower price momentum in October or not. Simply put, it’s too soon to know given that this is October 1st.
Gold is now a sideways market, with upside bias. I say this because the Swingline Study, the “yellow lines: on the chart are displaying a pattern of a higher highs and higher lows. As I am writing, support is seen at the “red” line, the 18-Day Moving Average of Closes, which is 1004.2.
I’ve labeled what I think to be the current trading range for you. Until the most recent low of 986.1, the short term trend looks to be neutral since the Swingline is pointing up and prices are under the 18-Day Moving Average of Closes.
Longer Term Outlook
Below is a Weekly Gold Chart.
The bold yellow line is the Swingline Study. It is in a bullish phase since it has a pattern of higher highs and higher lows.
What I don’t know is how this week will finish up. Let’s assume prices on Friday do not break 984.7. Then 984.7 will stay as the Swingline Low. If prices break next week or soon under 984.7, support under the market would be at the 18-Week Moving Average of Closes, the red line, which currently has a value of 960.1
Let’s assume the seasonal study proves accurate and prices move sideways to lower in October. The downside objective is 960.1 and the Stochastic Study should break down. If Stochastics move down, this will correct this chart’s overbought Stochastic reading.
Next, let’s assume that prices don’t break, but go sideways to higher for the month and don’t break 984.7. This would mean that price action has gone against the historical October trend, which has occurred before. In this case my guess is the Stochastic Study would begin to embed or end up fully embedded by month’s end. If the Stochastic Study were to embed, I would expect prices to move right up and through the 1025 level like, butter, making new highs for the move by year end.
This is a pivotal month. Longer-term traders should be on the lookout to establish a long position by month’s end or in early November.
Trade Recommendations
Whether or not I end up making short term recommendations to get short in October or not, I believe the bigger play is using market weakness to establish a long position. The question is where and when, assuming prices follow seasonal expectations.
The current stalling of prices was expected. A pullback is expected. What I don’t expect in October is a move to new highs in gold.
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Disclaimer: This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is taken from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and Options on Futures trading involve risk. In no event should the content of this market letter be construed as an express or implied promise, guarantee or implication by or from The Ira Epstein Division of The Linn Group, Inc or The Linn Group, Inc. that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are no indication of future performance.
-- Posted Thursday, 1 October 2009 | Digg This Article
| Source: GoldSeek.com
