-- Posted Thursday, 22 July 2010 | | Source: GoldSeek.com
Its summer and summer time markets are upon us. Volume is light, trends are quick to reverse and the markets react in spurts to even the smallest hint of change.
The Eurozone Bank Stress Test results will be presented to the world starting on Friday. I’ve read that the results will be published in phases, with the aggregate of the test being released first and afterwards more detailed reports will be issued. My expectation is that some bank mergers will soon follow, but that overall, the report will come out friendly.
Over the past two days we’ve seen a change in foreign currency trends. The Dollar has rallied at the expense of the Eurocurrency. My guess is that those who had bought in anticipation of the stress test results have begun moving to the sidelines. Sort of a “buy the rumor, sell the fact” impact.
Fed Chairman Bernanke is now spending two days in front of the Senate Banking Committee. Today he stated the obvious. The economic recovery is fragile and job growth is weak. Bonds rallied nearly a full point as he spoke; stock indices and gold prices broke. Bonds rallied because the Chairman said that interest rates were going to stay low a long period of time.
If you’re a gold bull I think you realize that gold’s in need of an “event of some type” to move it along. While we have a weak economy, it doesn’t seem weak enough to create the type of hysteria seen nearly a year and half ago. I think it highly unlikely that the Eurozone Bank Test will come out so poor as to create a rush into gold. Sovereign debt issues could of course resurface at anytime, but as we’ve just witnessed, lower credit ratings from EU members are not propping gold prices higher. The fact that Greece and Spain can and are selling their debt in the open market at rates similar to or lower than the EU/IMF rescue plan is also not a prop to gold. Even the news of Hungary not being able to access the rest of the EU funds it needs didn’t prop gold up this week either.
Simply put, the current fundamentals aren’t acting a as prop to gold prices. This can of course change in a moment, but given the lack of bullish reaction to the above events by gold, I don’t see why gold would suddenly take on a bullish mentality.
Technically speaking what gold does have is a bearish chart outlook.
Below is a Daily Chart of August 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 on the chart below is the Swingline Study which is a technical tool I developed to help define what the trend is as displayed by this indicator and what the Dollar risk is as the Swingline Study defines it. At this time the Swingline Study is bearish. Rally highs are lower than previous rally highs and current break lows are lower than previous break lows. That is the definition of a downtrend.
Prices are trading under the 18-Day Moving Average of Closes, which confirms the Swingline bearishness.
Stochastics failed to embed today. Embedding occurs when the K an D lines that make this study up have been trading for several days under 20, which means the chart’s internal momentum has shifted from being oversold to “locking in” and gaining downside momentum. That failed to occur today, which means prices are simply oversold. Yes, in a downtrend, but oversold.
If prices continue down, the Bollinger Band Bottom of 1171.7 looks to be the next downside target. Nothing on the chart looks bullish, but the oversold condition is cause for concern if you sell on a break in prices.
The weekly chart confirms the bearishness of the daily chart.
The Slow Stochastic Study has downside momentum. In my last report I pointed out that when the Slow Stochastic Study loses its embedded status, it is not uncommon for prices to retreat back towards or to the 18-Week Moving Average of Closes. This as you can see is what took place since my last Gold Report, written on July 8th.
The Swingline Study has a pattern of lower highs and lower lows. That is bearish and will remain so until 1218.8 is taken out or a new pattern forms over the next couple of weeks.
Prices are trading under the 18-Week Moving Average of Closing Prices, which confirms the Swingline bearish chart pattern.
The Bollinger Band Bottom comes in near 1107.8.
I am in the bear camp and am looking for prices to encounter resistance on rallies. In order for me to shift this stance, prices on the weekly chart would have to get up and over 1218.8.
I do not recommend selling short into oversold conditions as seen on the December Gold chart. Rather, I would prefer to see a rally develop that alleviates the oversold condition or wait to see if Stochastics embed.
Assuming the downtrend stays in place, I see an immediate downside target of 1171.7, the Bollinger Band Bottom as seen on the daily chart. Longer term, a challenge of the Weekly Chart’s Bollinger Band Bottom near 1107.8 remains an overall target if the daily and weekly chart trends stay in bearish alignment.
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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, 22 July 2010 | Digg This Article
| Source: GoldSeek.com
