-- Posted Thursday, 25 April 2013 | | Disqus
Here’s what I wrote in my last report on April 4th.
“I am bearish.
Rallies look to me as though they offer short selling opportunities.
Seasonally speaking, this is the time of year when gold tries to rally. The seasonal rally, if it occurs, often lasts into the latter part of April. In the 15-year time frame covered by MRCI, (Moore Research Center, Inc.) the rally did not occur in all the fifteen years covered. Given that prices are trading under the lower Bollinger Band, my expectation is that a rally attempt will take place during this time frame but will result in providing another selling opportunity.
Little if anything in the way of norms are moving gold higher or even supporting gold prices. That means that bullish psychology is totally lacking. Markets that get ingrained with bearish psychology overwhelm other thought processes until prices get to an extreme. Gold isn’t at that point so it remains a short sale on rallies.”
In looking back, from April 4th to April 11th prices rallied from 1539.4 up to 1590.1. On Friday, April 12th, prices began their collapse to down 1321.5.
As prices broke over $200, small investors took notice and ran to buy gold coins. The US Mint announced just yesterday that it will stop selling 1/10th of an ounce gold coins due to overwhelmingly large demand, which caused the Mint to run out of supply. The Mint will begin production again but what’s obvious to me is that the public believes $1350 is a bargain price. The problem with that is that I don’t think the “public” is generally right.
Next week a number of Central Banks will be holding their meetings. I don’t expect the US Fed to change its stance. Rather, I think we’ll find that even the hawks aren’t satisfied with the lack of job growth or the most economic pieces of data.
Housing remains a stellar performer. Stock earnings are beginning to faltering a bit, but not enough to scare investors off just yet. I am in the “sell May go away camp”.
The Japanese Government did not come under attack at last week’s G-20 Meeting for debasing their currency. If anything, they received praise for changing course to reverse deflation.
Another upcoming moment might come from the European Central Bank which might be ready to not be as austere as they’ve been and move to lower interest rates at their upcoming meeting.
Goldman Sachs’s attitude towards gold is now no longer as bearish as it was given how correct they were in predicting the current price break.
I remain bearish because the charts I follow remain bearish.
One of the first things I notice when looking at the above Weekly chart is that the chart pattern is one of a higher high, 1616.5 and a lower low, at 1323.0. That means the pattern is this < which I define as a “widening out pattern”, one with bearish bias. We know where the most recent high is determined by the Swingline Study. It’s 1616.5. What we don’t know is whether the current rally will take that high out or whether prices on the current rally will fail and form a pattern with a lower high.
Prices are currently under the Bollinger Band Bottom of 1433.4. The dashed black lines show the Bollinger Bands. By definition, prices don’t stay under this algorithm more than 2.5% of the time. However, this is a weekly chart, not a daily one. Therefore, prices can stay at or under the lower band for weeks at time and not violate anything. Possible resolutions are that lower the band moves lower with prices staying where they are, prices can rally a bit getting slightly over the lower and then track the band lower or prices can rally sharply and get away far away from the band. I don’t see any reason for prices to rally sharply.
The rally on the above Daily Chart is taking place under the 18-Day Moving Average of Closes. I display this moving average as the red line on the above chart.
My technical indicator, called Swingline, admittedly has a chart pattern of higher highs and higher lows, which simply means a short covering rally is taking place, not that a reversal of the downtrend has taken place. As long as prices stay under the 18-Day Moving Average of Closes, I will continue to look for sell, not buy signals.
The Slow Stochastic reading as seen on the bottom of the above chart is no longer in an oversold condition, according to how I teach this and other reading in my charting course.
I teach how I arrive at this in my trading course, Ira Epstein’s Charting Course. (http://www.iraepstein.com/education.html)
As a chartist, if the most recent Swingline Low of 1404 is taken out before the last Swingline High of 1438.8 is taken out; a new leg down on the chart is likely.
A wild card might be if the European Central Bank decides to change course and start lowering interest rates. While longer term that would be inflationary, in the short term it might actually drive the US Dollar which would be bearish gold.
One of my problems in the short term is that nothing I see in terms of current fundamentals has moved gold to the upside. It took a break over $200 an ounce to find a spot where investors moved to either buy gold or short cover gold positions.
Now that a rally of over $100 an ounce has taken place, the market is no longer oversold.
I will be issuing a short sale signal to my customers tonight. I am not interested in selling the rally, but rather getting my customers short if the rally falters.
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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, 25 April 2013 | Digg This Article
| Source: GoldSeek.com
