-- Posted Thursday, 27 May 2010 | | Source: GoldSeek.com
The marketplace is facing and interpreting “fixes” to European Credit Markets, the Chinese saying they are not divesting their holding of Eurocurrency and questions concerning how strong world economies will be as all this goes on.
If you’ve been watching stock indices you know that the swings this week have been extremely volatile. This volatility had been supportive of gold. In fact, since my last Gold Report, the August Gold contract has rallied from a low of 1168 up to today’s high of 1120.6 in the August Gold contact.
From a chart perspective, gold seems be caught in an $83 trading range. The trading range’s high of 1251.4 made on May 14th. The low of the range was made 6 trading days later at 1168.
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. The Swingline Patter is a downtrend pattern since the last event; the lower low being the most recent Swingline event.
Neutralizing the Swingline pattern is where prices are trading. Prices are trading over the 18-Day Moving Average of Closes, which as long as this lasts neutralizes the Swingline patter and in theory, keeps selling at bay. A close back under this average, assuming the Swingline Study continues with a pattern of lower highs and lower lows means to me resumption of selling pressure.
Keeping the mix interesting, the SSTO (Slow Stochastic) reading is now neutral.
Last week I wrote, “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”. In retrospect that advice was on dead on.
It won’t take a lot to negate the Swingline Study and turn it higher. If prices were to take out today’s low of 1207.4 and if they were to rally back though today’s high, the Swingline pattern would become bullish. However, that’s a lot of “ifs”.
The Swingline Study Trend on the Weekly Chart remains up and prices remain under the Bollinger Band Top, which I interpret to mean that prices are not “ahead of themselves”. The Slow Stochastic Reading (SSTO) of 75.90 and 79.47 implies to me that prices are in an overbought area where the study either decides to embed, with both readings of the Slow Stochastic Reading getting and staying above 80 or prices move lower. I don’t see a middle ground.
It’s important to remember that weekly chart indicators move much slower than daily chart indicators. Therefore an overbought or for that matter oversold Stochastic reading on weekly charts is not as serious as those on daily charts.
The chart action on this chart continues to look bullish with 1233.2, the Bollinger Band top as the next upside resistance target.
Gold seems to be trying to decide what next.
Without question I am fundamentally speaking a long-term bull, a bull that ultimately believes that gold is going sharply higher. The problem with using that thought process in trading or investing in gold is one of what your tolerance level is.
If you like to use leverage by using futures, just holding on can become very expensive when price corrections take place. A drop in 6 days of over $80 an ounce represents on a standard 100 ounce contract just over $8000. If you trade mini gold contracts it represents over $2600 per contract. To me that’s a lot of heat to withstand when the market goes against you and no, the market has not rallied back up to its high.
Right now the trend as I interpret it is neutral. It most likely will change after the Memorial Day Holiday. Be ready for whatever occurs.
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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, 27 May 2010 | Digg This Article
| Source: GoldSeek.com
