-- Posted Thursday, 3 March 2011 | | Source: GoldSeek.com
Since my last report the world has witnessed a sea of change in Africa and the Middle East.
Financial data out of the US, China and Europe is almost meaningless as traders focus on energy prices. Fear of loss of energy supply is driving metals, interest rates, currency values and general commodity prices.
Libya was the first country to see its ruler turn on the populace by use of armed force. I have heard comments of more than 1000 dead. Economic sanctions are in place against the Gadhafi family and other Libyan assets. Restriction of Libyan air space is under consideration by the UN Security Council. Europe and other foreign countries have pulled oil workers out of Libya.
Will other oil producing countries come under attack by its populace? I think that’s a certainty. The question is how each handles the demands put on them.
Saudi Arabia, Iran and Bahrain are now in “play”. Will their ruling governments give in to demands of their populace? My guess is yes; both will have to in some manner unless they want to be overthrown. Libya is a prime example of what happens when force is used to hold onto control when a revolt takes place.
This could become a nightmare scenario for importers of Brent Crude Oil. In fact other oil such as WTI is also seeing price pressure since energy is energy. Once a major part of the complex goes haywire it seems the whole complex takes off.
News commentators and market analysts are now busy trying to predict at what price energy will slow down world economies. I heard Bill Gross of Pimco speak on CNBC today. He mentioned that a 20% increase, or another $20 in WTI crude, would dampen world GDP by 1%.
It’s events like these that reinforce my belief in chart analysis. Unlike silver, gold prices have not been able run very much to the upside. Think about it. Gold corrected in the April Gold Contract from the $1430 level down to the $1310 level. It’s now moved back up to $1430 of oil “issues”. However, as a gold investor, I think the performance to not be that great given the break in the Dollar and general rise seen in many other commodity prices.
Below is a Seasonal Chart of Gold prices produced and provided by Moore Research Center, Inc., (www.mrci.com). I’ve been writing about gold’s historical tendencies for a long time.
For those of you that wish to learn more about seasonal historical studies, visit the Moore Research Center and sign up for their 14-day free trial.
Seasonally speaking, March is not a month where an uptrend in gold prices takes place. I realize that history does not predict the future and that world events are such that this year might be an exception to the rule. However, I can’t get away from being disappointed in gold prices not surging forward during all this chaos.
Below is a Daily Chart of the April Gold contract.
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 Swingline Study is shown as a “brown” line.
The Swingline Study on the daily chart just recently turned bullish, formulating a chart pattern of “higher highs and higher lows”.
I know how unpopular it’s going to be to say this, but I would not recommend buying into the Bollinger Band Top. Unless you can get long on your terms, whatever those are, I see the risk as being down to the last Swingline Low of 1392.1, which is one tick under the last Swingline Low of 1392.2.
Look back at previous Bollinger Band (BB) Tops and Bottoms. Buying over a BB Top or selling under one is simply not what I’d recommend.
Markets can and do trade against BB Tops and Bottom. This is not unusual. However you have to understand that you are doing so at an “extreme” and that at any point a return to the 18-Day Moving Average of Closes can occur. This (the red line on the above chart) is where the market can do what I call a “reset”. In other words this would be where I would expect first support to be seen if a downside correction occurs.
From this level the market should soon decide if it wants to continue to the uptrend or start a downtrend. I say this since part of my chart analysis has to be with what the 18-Day Moving Average of Closes means to me.
When prices are over this indicator I teach to look for potential Buy Signals. When under this number I teach to look for potential Sell Signals. It is my “line in the sand number”. A major filter I use in chart analysis.
The question on this chart is whether or not the Bollinger Band expands and widens out if prices back off and get back under the Bollinger Band Top.
Weekly stochastic readings, the SSTO graph on the bottom of the above chart is in overbought territory. Most of the time the market doesn’t spend a long time over an 80 reading or under a 20-reading. The problem with the weekly reading is that because of the time frame prices can move up when over 80 or down when under 20 rather sharply before prices move back off from those readings.
If prices were to pull back, first support on this chart is the 18-Week Moving Average of Closing Prices, currently displayed as 1377.8.
The current chart formation is one where until prices get back under 1307.7, the trend remains overbought, but up.
Until an uptrend is over, it’s not over.
WTI Crude has moved nearly $20 an ounce since the Libyan situation began. Keep in mind that this market has moved from what some were calling an oversupply at $90 plus. Now the sky is the limit.
The problems are many.
The Dollar is in my opinion not going to change its character anytime soon. I think it will remain under pressure for a long time to come. If gold is relying on an overall weak Dollar, I think it has it given that European countries are looking to raise interest rates, sovereign debt issues don’t seem to matter and crude oil is driving prices in it.
When crude oil eventually corrects, the markets that have rallied off crude oil’s rally will most likely feel selling pressure. When this occurs is anyone’s guess as is what the high price will be when it occurs. Therefore, don’t be a top picker.
I think the key is to not get back under 1392.2 on the Daily Chart. Until that occurs I think you maintain a bullish stance.
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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, 3 March 2011 | Digg This Article | Source: GoldSeek.com