-- Posted Wednesday, 6 January 2010 | | Source: GoldSeek.com
The New Year initially opened with a surge in practically all commodity prices.
This could have been in part due to Hedge and Commodity Funds putting capital back to work, geopolitical events, the sharp drop in the Dollar the past two days and the fact that gold prices fell 10% or so this past December. An upward reaction in gold prices was due.
The first week of the year is important to some traders since this week makes up what is called the “January Effect”. Some market analysts believe that the way the first week of the year goes, so goes the stock market for the rest of the year. I am not a believer in this since my personal trading experience has taught me that adages like this simply don’t always work. Some years they do, others they don’t.
More important to me are world events. Events like China’s growth reportedly beating previous growth estimates. US unemployment thought to have already or possibly now be peaking. Iran’s giving the world ultimatums about its nuclear program and increasing terrorism threats from many areas around the world.
In looking at the chart below it looks pretty clear to me that the relationship between the Dollar and Gold prices remain intact and inverted. Need proof? Look below to see the relationship. There has been a period or two where the two tried breaking this relationship, but it’s clearly still at work.
I doubt that gold will have another substantial rally unless or until the Dollar breaks down in value or gold de-links itself from the Dollar.
In my last Metal Report I mentioned that I expected that a rally, back up to the 18-Day Moving Average of Closes to develop once the Slow Stochastic Study turned up. On December 28, 2009 the “K” line part of the study did so by closing at 26.26. That close effectively ended the Stochastic embedded reading and set in motion a move that drove prices back up to resistance, in this case the 18-Day Moving Average of Closes, which in turn negated the downtrend that had been in place since prices peaked on December 3rd.
Below is a chart of gold, scaled to a weekly basis. Each gold bar on the chart represents one week of trading.
The first thing I notice when looking at the above chart is where prices are in relation to the Bollinger Band Top, which is the black line at the top of the above chart. It is very rare for markets to stay over a Bollinger Band Top or for that matter under a Bollinger Band Bottom for more than 3 to 5 bars. I say bars since each bar on a chart can represent a different period of time…weekly, monthly, daily and so on. Each of the gold bars above represent one week. The bars on the Daily Chart represent one day at a time.
My experience has been that when “bar” first gets and closes over a top band, it retreats back very shortly. Once it retreats it can track the top band, break hard or drift sideways to lower depending on what prices next do. The Slow Stochastic Study is used to help to determine how or if prices will continue to track the top or lower band.
The bottom graph on the above chart is called a Slow Stochastic Study. It is plotted on a scale line, between 0 and 100. The study is comprised of two lines, one called a “K” and the other called “D” Line. The K Line moves around the D Line in green.
In this case, when both the K and D lines were over the 80 scale reading and the red line closed back under 80, prices are said to have lost their upside momentum. Loss in momentum loses can result in prices looking to move down to a previous support area. In this case, the support was down at the 18-Day Moving Average of Closes, $1080.4.
What’s important on this chart is that the Swingline Study as depicted by the thin black line the runs over and under the gold bars, continues a pattern of making higher highs and higher lows as prices continue to trade over the 18-Day Moving Average of Closes. In other words, the Weekly Gold Chart remains in a bullish pattern. I define current price action as a price correction, not yet a change of trend.
While all this is taking place, the Slow Stochastic Study has quietly traded back into a neutral zone, defined on the scale as being near 50.
I am closely watch how gold pulls back after the rally on Monday. If prices hold the 18-Day Average of Closes on the Daily Chart and close higher late in the week, my belief is that prices will be ready to rally into month’s end. Seasonally speaking there is a story for this that I will cover in my next report.
I recommended getting into gold spreads to early. Traders who follow my updates should be in the February Gold 1200 vs. 1220 Call Spreads at an average price of $5.00. These spreads go off the board January 26th, so it’s time they either work or you salvage value. The next few days will tell the story.
As for gold itself, the seasonal trend in recent years has been up in January into February. If I get an outright buy signal, look for it to be issued in my Twice Daily Update and in my oral updates.
The key to keeping up with my trade recommendations are through my Twice Daily Updates.
This Weekly Metal Report is designed to provide you with my current “take” on the gold market. However, what happens when my ideas change before I write my next report? That’s where my Daily Updates come into play.
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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 Wednesday, 6 January 2010 | Digg This Article
| Source: GoldSeek.com
