In the past 72-hours a lot has taken place.

The European Central Bank held their next round of its bank liquefying program, called LTRO. It was completed yesterday with more banks being given this time around, amounting to nearly $800 billion being lent out. We’ll see what the banks do with these funds, but the first thing seen was that yields on Italian and Spanish debt instruments fell yesterday and today. I interpret this to mean that funds are being put to work already by those borrowing using those funds buying these instruments. If a bank borrows at 1% and can invest at 5%, they make the spread of approximately 4%. This is part of the LTRO Plan’s goal, to liquefy bank balance sheets by “hoping” banks invest part of the lent funds in sovereign debt which in theory helps cap interest rates. The banks are not required to invest this way, but given the ECB is behind this, there’s probably not a lot of additional risk being taken on. There’s risk if everything were to go south, but in the near term, I don’t see this being the issue.

One of the things that put gold under selling pressure yesterday was the lack of talk about further QE programs. Fed Chairman Bernanke did not mention further quantitative easing in his speech before Capitol Hill yesterday. He might do so today, but the lack of it negatively impacted gold since lack of doing so might be interpreted as the Fed moving away from a as loose a money stance, which would impact potential inflation plays. Another element was simply that gold was ripe for some profit taking.

Nothing new has taken place with Iran in terms of war threats. It’s status quo for the time being. I read a report yesterday where Israel and the US are behind the scene having serious issues as Israel is getting more difficult for the US to control. I’m not sure of Israel’s capabilities without US support in terms of launching air strikes, getting air clearance to fly over Middle East countries and so on, but it’s sounding like Israel is getting ready to go its own way as there were press reports alluding to Israel not telling the US when it is going to strike, if it decides to strike.

With elections soon to take place in Iran, it’s hard to figure out what Iran’s thinking is. They can use harassment as a means to motivate voters. The economic noose continues to tighten, but we have to realize that each day that goes by probably gets Iran another day closer to further nuclear breakthroughs. Once the election is over, I think Iran will take an even “harder” stand. Elections aren’t as free there as they are in other countries and given protests that resulted in a nasty crackdown after the last election, don’t be surprised if people simply don’t vote as a way of protest. It will matter little since no one is taking the lead in an uprising.

Another issue that put gold under selling pressure yesterday was the lack of talk about further QE programs by Fed Chairman Bernanke. He did not mention further quantitative easing in his speech before Capitol Hill yesterday or today.

Yesterday, the last day of the month, closed the month with a loss as compared to January’s close.

The chart pattern above is one of lower highs and lower lows. I think it important for the bulls to see prices get over 1790.4 in order to reverse this pattern. By not doing so, prices might drop back to the 18-Day Moving Average of Closes, seen on the chart near shown later in this report.

What’s clear on this chart is that rally from the last break low 1525 hasn’t resulted in prices taking out the past recent high. If anything, a lower high has been made at 1790.4. Take this out and the bull move should regenerate. Until then, a trading affair is what is likely to ensue.

The chart below is published with permission of the Moore Research Center, Inc.

For simplicity purposes, I have only published what a Bull Year looks like given that there’s no reason to yet consider a Bear Year in my opinion.

As I wrote last week, “a price runup in January and February is not an uncommon event as seen on the above chart which displays both 5 and 15-year chart patterns. Both patterns seem to consolidate a bit in March and April before moving up again in May.”

Moore Research also points out a seasonal trade on March 1^st that tries to take advantage of this by going short on March 1^st. That could be interpreted as tonight’s close. On the other hand, I was warning people that because of Leap Year, some might have jumped the gun and sold yesterday. If they did, the first downside target was hit, If not, the question is where to sell on this rally. If you want to know more about their trading strategies, I recommend you go to their website at www.mrci.com.

The chart pattern above is one of a higher high and lower low. For the time being, I view resistance as 1743.6, the 18-Day Moving Average of Closes. As long as prices stay under this moving average, I think prices will remain with a downside bias, which leads to the question of where support comes in.

In the below chart I add two other moving averages, the 45-Day Moving Average of Closes shown in blue and the100-Day Moving Average of Closes show in green. I’ve also added the Bollinger Bands.

Bollinger Bands are an algorithm designed to keep prices trading within the bands 95% of the time. When prices travel against the band are said to be strongly trading in the direction of the band. However, more times than not when prices when hit one of the bands prices turn away from that band. I view the hitting of a band as a test of support or resistance zones where one should lighten up trade positions.

Yesterday’s break hit the 100 and the 45 Day Moving Average of Closing Prices. It also hit the Bollinger Band Bottom. In other words, it hit a series of downside targes and until it rallies hard, those short should have taken off a good portion of their short positions.

In my last report I pointed to 1706.7 as a number I didn’t want to see taken out if the bull run was to continue. During the week after I wrote, prices moved up and made a higher low on the Daily Chart at 1762.7. The break yesterday took this this number out and on the Weekly Chart the last break low of 1706.7.

Upside momentum for the time being is to be questioned. A move over 1790.4 would do a lot to put the bulls back in control, but for the time being it’s the bears that have the upperhand. Look for resistance against 1743.7, the 18-Day Moving Average of Closing Prices on the Daily Chart.  If prices hold against this, a break down back to the $1700 level should be in the cards.  We’re at an import level going into spring months.

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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, 1 March 2012 | Digg This Article