-- Posted Friday, 6 November 2009 | | Source: GoldSeek.com
Seasonal Story
I’d like to begin this report as I usually do, by taking a look at where I think prices currently are in relation to gold’s 35 and 15-Year Seasonal Chart. The chart below is provided by The Moore Research Center. The labeling as to where I think prices are comes from my own analysis.
You are invited to view information about the many services The Moore Research Center provides by going to their website at: http://www/mrci.com
I use Seasonal Charts in an attempt to get a “perspective” of where prices are in terms of historical momentum and whether or not current price patterns are following historical ones.
As I wrote last week, I believe gold’s current price action to be in synch with both the 35 and 15-year historical pattern. Keep in mind that this is no more than a trading tool, one that displays current prices with that of past history. Past history does not guarantee future price movement.
Weekly Gold Chart
I define the trend on this chart as bullish since the Swingline Study, which is displayed in the above chart as the “brown” line currently has a pattern of higher highs and higher lows. This week’s high is higher than the previous high of 1070 which was made three weeks ago. The most current low is 1026.9. Higher highs and higher lows make up a large part of the definition of an uptrend.
On this chart I have also displayed the Bollinger Band Study in “black”. Prices are currently trading over the top Bollinger Band value of 1088.5. This concerns me because the mathematics and concept behind the Bollinger Band algorithm are that prices will trade within the Bollinger Bands 95% of the time. That means that the odds of staying over the top band or under the bottom band are small. Since I don’t think prices will stay for long over the Bollinger Band Top, it would not surprise me to see sideways to lower price action at any moment.
Another issue I have is trading against what I call a “big number”. $1100 is such a number given that gold has never traded at $1100 and has a historic sound to it. Sort of like $1000 versus $1050 which doesn’t have the impact of $1100.
It’s also been my belief that gold has a tendency to move in $25 increments. If prices streak higher beyond a $25 increment, I think the increment expands, say to $50. In any case, that’s what I think.
As such, $1100 is both a “big” round number and a $25 multiple. Therefore it would not surprise me to see this number act first as a price magnet, drawing momentum to it and than as short term resistance, once the price it hit.
The key is that the trend is up.
Daily Gold Chart
This chart is displayed below.
Gold rallied back. In last week’s Metal Report I commented that my entry into a Gold Spread looked too early. It was, but worked out nonetheless given the sharp rally into all time highs, as forecast. Whew!
Look at the Stochastic Study. It is overbought. An overbought condition according to my rule develops anytime the one of the two lines that makes up the Stochastic reading gets over 70. The red line, the “K” line, has a reading of 82.58. I consider this to be overbought.
An overbought condition can resolve itself by either seeing a correction in prices develop which lowers the K line value or seeing the Stochastic Study transition to an embedded status. An embedded status develops when both lines that make up the Stochastic Study get and stay over 80. This has not yet occurred.
So, what to do now becomes the question.
My answer to the question is as I wrote in my Twice Daily Update this week. In my update I recommended taking off half of the Vertical Call Spreads that I had recommended two weeks ago. On breaks, I will look to either add more Vertical Call Spreads or a simple long futures position as I remain very bullish going into the end of the year.
Right now gold looks overbought. In addition prices are trading up, against the Bollinger Band Top on the December Gold Daily Chart. I do not recommend new long positions when prices are over the Bollinger Band Top. In addition, seasonal chart displays a tendency for gold to break about mid-November. Hopefully things will come together and on a price break another purchase will be recommended.
Trade Recommendations
My recommendation in this report has been to be long the December Gold 1090 Call versus the sale of the December Gold 1100 Call. The recommendation was to enter the trade a difference of $2.00. In last week’s report I made mention that this call spread closed at $1.00 and that I was a bit early on my entry, but that I expect a move up in early November.
Yesterday in my Twice Daily Update I recommended that customer’s take 50% profit at $4.50. Due to yesterday’s strong move up, my initial price target in the call spreads were hit. This should have left those who follow my Twice Daily Update long 50% of their position.
My intent at this time is to have my customers stay with this position for now. Given the right chart formation, I look to issue another buy signal, but at lower prices if given the opportunity. If not, those who follow me have on a base position.
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 Friday, 6 November 2009 | Digg This Article
| Source: GoldSeek.com
