-- Posted Thursday, 22 October 2009 | Digg This Article
| | Source: GoldSeek.com
Seasonal Story
Let’s start this week by taking a look at where the 35 and 15-Year Seasonal Chart looks to be. The chart itself is from The Moore Research Center. The labeling on it is my own.
You can view their website by going to: http://www/mrci.com
Readers of my report know I was looking for more of a price break than gold has seen since prices peaked in mid October. What I did not expect was as much sideways action off that peak as has been seen. On October 14th, December Gold hit a high price of 1072. Since then, prices have drifted sideways to lower. Two days after peaking at 1072, prices hit their current low 1043.7. In essence gold has been trading in a $30 price range over the past week.
Daily Gold Chart
Gold is consolidating. Because of gold’s seasonal tendency to break in the second half of October, the odds favor that prices will try to probe lower over the next 10 days or so. How low prices go is the question. Because I remain bearish the Dollar and bullish gold, I have decided to use current market weakness to put on some Gold Call Spreads.
Let me explain why.
Gold paid little if any attention to the Dollar making new yearly lows this week. In past weeks if the Dollar dropped 30-50 points or made new yearly lows, gold responded with a sharp rally. The Dollar made new lows for the year this week and gold did not rally.
Why the change? Maybe a short term shift in psychology is the answer. Gold may have factored in a 75.00 Dollar Index. Another reason may simply be gold’s seasonal tendency to stay weak in late October. It really doesn’t matter the reason. The fact is that this is what occurred.
Let’s take a look at the Daily Chart of December Gold.
Here’s what I see.
First, Stochastics remain embedded. Normally this is a very bullish technical condition. However, what is bothersome to me is that the embedded status occurred back on October 13th. Since that time prices have not advanced. Therefore, at best all that this technical reading has provided to gold is price stability, not a rally. I find this bothersome.
Second, if the Stochastic Study loses its embedded status, the odds favor a return down to the 18-Day Moving Average of Closes. The embedded status would be lost if the K reading, the red line reading on this chart of 85.01 closes under 80. As of this writing that would mean a projection in prices down to the $1040-$1045 price level, given that the 18-Day Moving Average of Closes is advancing about $4 or so per day.
Third, the seasonal pattern doesn’t bottom until the end of October, which is next Friday. A seasonal buy signal hits on November 1st.
Trade Recommendations
I’d rather jump the gun than miss a move, so last night I recommended in my Twice Daily Updates a purchase of the December Gold 1090 Call and a simultaneous sale of the December Gold 1100 Call. My recommendation was to do so at a difference of $2.00.
Those who placed this order last night or early this morning should have been filled.
What you have at risk at most is the cost of the spread, $200, plus your commissions. The most you can make is $1000, less the $200 you paid for the spread plus commissions. Basically, you are risking $200 to make $800.
If I am correct, an outright purchase of gold futures is not far off. I will advise when that occurs.
Ira’s Twice Daily Updates
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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, 22 October 2009 | Digg This Article | Source: GoldSeek.com
