-- Posted Thursday, 20 May 2010 | | Source: GoldSeek.com
The Euro Zone situation has become even more unsettled in terms of public sentiment. That perception of instability has brought fear to the financial markets. That fear could have driven gold prices higher, but it did not. Rather, it drove gold down nearly $75 from its current market top of $1251.4.
I’m sure there’s a number of people asking themselves “wasn’t gold supposed to be a safe haven investment in this type of scenario?” I would think so which leaves the bulls disappointed. “Disappointed” does not mean those bullish have capitulated and given up on gold. Rather it means that buying the last leg up of the current rally hasn’t paid off, which for shorter term traders is a change in the market’s character. Is it unusual? Not really as markets that don’t respond to perfect storm scenarios like seen in Europe, often correct. Last Friday was the tip off, a tip off I have made mention of in my video reports.
The markets that investors have run to are the US Dollar, the Japanese Yen and US Treasuries. Stock indices have been selling off sharply over the past few days. In fact prices in the major indices I follow are quickly approaching levels last seen on during the flash crash of May 6th. Will stock indices hold at today or head even lower seems to be the question on investor’s minds. As readers of my Twice Daily Updates know I continue to see the trend in stock indices as being bearish. However the indices I track have seen prices hit their respective Bollinger Band Bottoms, which is where I expect to see first support levels to try to hold.
As for gold, it depends in part on the time frame you look at to figure out what is going on. From a shorter term perspective, the one seen on the Daily Chart, the trend is down. A pivot point for the market seems to be the 18-Day Moving Average of Closes. When prices get under this number I look for rallies up to it and when over it, vice versa.
Gold’s longer term Weekly Chart has more bullish picture, but it is a picture that via its Slow Stochastic reading looks overbought and in need of a price correction.
Below is a Daily Chart of June Gold. Each individual bar on the chart represents one day of trading. In “red” I have plotted the 18-Day Moving Average of Closing Prices, in “dark blue” the Swingline Study and the “black dashed line” is the Bollinger Band Study.
The dark blue line, the Swingline Study on the above chart is displaying a pattern of a higher high and a lower low. This is downtrend pattern since the last event is the lower low.
Prices are also trading under the 18-Day Moving Average of Closes, which is also bearish.
Last, the SSTO (Slow Stochastic) reading is not oversold and is displaying downside momentum, which is also bearish.
It would not surprise me to see the market try to rally up to 1199.3, the 18-Day Moving Average of Closes and trade near that level for a while. I doubt a decline down to the Bollinger Band Bottom level of $1150.2 will be quickly seen. However, it remains an active downside target if prices can go sideways a bit and the Swingline Study maintains its pattern of lower highs.
An attempt to bounce is likely at any moment, but this does not represent a change in trend because the chart pattern as it stands now requires a new contract high to reverse the downtrend in place. There is also no reason to sell short if you believe that your Stop Order belongs over the last rally high, which is nearly $75 an ounce higher.
The trend on the Weekly Chart remains up. Prices have retreated from trading over the Bollinger Band Top as expected. I stated and warned last week that because prices on the Weekly Chart were trading over the Bollinger Band Top, that I expected prices to “either pull back or go sideways in order to get themselves back under the top band. A third possibility is for prices to advance and just not do so, but that means prices may not get back to trading within the band, which is not what I expect.”
So in looking back I got what I expected, a price pullback where prices are now trading under the Bollinger Band Top.
The longer term Weekly Chart is also in the process of correcting an overbought Slow Stochastic Reading (SSTO) of 75.78 and 82.11. When both of these prices get back under 70, the overbought situation will in my opinion have been corrected.
By now you know about the debt contagion that has gripped Europe. The rescue plan between the European Union (EU), International Monetary Fund (IMF) and the US Federal Reserve Bank is in place and has been activated. Greece received nearly $20 billion this week to meet short term debt obligations and yet the markets remain fixated on sovereign debt issues and the value of the Eurocurrency.
Today, in spite of dramatic videos showing Greek citizens marching in the streets, the Eurocurrency has been able to rally about 200-points off the early morning low and is trading nearly 100-points higher, near 1.2487 as I am writing this report.
Could it be that for the short term the Eurocurrency got too low? That looks to be the case but don’t get overly bullish. If correct and this thinking proves right, short covering in a number of commodity markets could occur. The key will be to see how US Treasury instruments hold up and whether or not the US Dollar is able to hold up.
Gold is in no-man’s land. On the shorter term Daily Chart the trend is down. On the longer term Weekly Chart the trend is up and is correcting an overbought condition.
I look for prices to fight it out near $1200 on rallies. On breaks I expect to see support come in between today’s low of 1176.7 and 1150.
I would approach gold as a trading vehicle, not a trending one for the near term, using rallies to play the short side and price breaks to cover short positions.
There will be more about this in my Twice Daily Updates as trades show themselves.
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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. Chart data is courtesy of LGP-IraCharts. 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 not indicative of future performance.
-- Posted Thursday, 20 May 2010 | Digg This Article
| Source: GoldSeek.com
