-- Posted Thursday, 27 June 2013 | | Disqus
In my last report, I made mention of the sideways price action which I thought had no chance of lasting, given this was taking place in front of an important FOMC Meeting which the market place had already declared to be market moving event. As I see it, it didn’t matter what the Fed said, it was just getting past the event to trigger a move.
Here’s what I wrote. “Instead of getting caught up in a sideways, churning market, why not employ an option strategy whereby you purchase a Call and purchase a Put. Once gold starts a directional traded, you lift the side that is not with the trend and see how far the option moves. More sophisticated traders might even write a Call or Put once they see which way the breakout moves….”
Ok, that produced a home run for those who followed that idea but unfortunately nothing has changed for the Gold bulls, other than prices are lower. That meeting shifted focus again, which is now about an improving US economy, higher interest rates and a shift by the Fed in its thinking, which is now about when the Fed begins the process of tapering back the $85 billion a month in QE.
Do not make light of this shift, it’s very important as it means interest bearing instruments and ones that produce returns on money have replaced the “safe haven” thinking that drove gold for over a decade up to $1900, which took place 2-years ago. The press rarely makes mention that Gold has been declining nearly since August 2011. It’s hard to figure out where the decline ends, but $1200, $1100 and $1000 an ounce are numbers being thrown around by a number of market analysts.
Trading bottoms take time to form. It’s not necessary to be the first in your neighborhood to try to find it as you’ll most likely get hurt doing so since the trend at this point is down and not even oversold. Until the Slow Stochastic Study losses it embedded reading, prices look headed even lower. Even when this reading is lost and rally develops, expect a lot of choppiness with a downside bias for a long time as downtrends take a long time to end and this one has not yet gotten the interest of big investor names such as George Soros.
For those that don’t understand what an embedded Slow Stochastic is I recommend you watch my YouTube Daily Videos by typing in my name or better yet, take the Ira Epstein Charting Course.
In any case, “embedded” means “locked in” and is part of an event that occurs when the Slow Stochastic Study evolves from being oversold to locking in a downtrend.
Daily Chart with just Slow Stochastic Reading
Until the Slow Stochastic reading is lost, rallies will to look to me as selling opportunities.
Lending more credence to my overall bearish stance on gold is the historical tendency of gold to break in June and early July. While past history is not a guide for the future, it is important to pay to attention to as it offers some insight into future demand. Being summer, demand in some markets tends to taper off, which is what gold has been seeing. I read recently that some ETFs now have holdings at their lowest levels since 2009.
It’s also important to note that historically speaking, gold does not have a seasonal tendency to move up or down. In other words, it doesn’t have an event that occurs yearly in July that can be tracked on a historical basis like it does in June.
I’ve plotted the 18-Day Moving Average of Closes, along with the Bollinger Bands and Slow Stochastic study. As long as the Slow Stochastic reading stays embedded, I look for rallies to be selling opportunities.
The Swingline Study which I’ve labeled on the above chart continues to make lower highs and lower lows, while prices remain under the 18-Day Moving Average of Closes. This is a bearish sign.
I don’t recommend selling under Bollinger Band Bottoms. Rather in this case recognize that the market has those long on the ropes and won’t let them out easily.
As I see it, it’s important to sell above the Bollinger Band Bottom as part of the theory of this algorithm is that prices close under it approximately 2.5% of the time. Playing for just 2.5% makes no sense to me. Look at the study on the above chart. Prices rarely stay under the Bollinger Band Bottom. That doesn’t mean the market has to rally. It simply means if you go short, sell over this number and consider this number when first attacked as a theoretical support level. Not a level to go long from.
Gold is thrusting downwards. It will probably drop enough to set up a trade bottom unless it bounces soon. Prices are at noon today dropping again, low enough to get once again under the Bollinger Band.
When gold drops, silver often drops. I can’t help but notice that gold is not pulling silver much lower at this point, which means the $1200 level might offer gold some support as other metal markets are for the first time in a while, not following gold’s lead.
I look to make more short sale recommendations, but not at or near $1200 an ounce as that seems an extreme price level to me. Ultimately, I expect it to give way, but not right now.
If you followed my option straddles idea in my least report, this is a good area to cover the whole position.
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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 June 2013 | Digg This Article
| Source: GoldSeek.com
