The next “big” event for the US economy is the upcoming FOMC Meeting, next week on December 17^th and 18^th. This meeting will no doubt be one where the Fed discusses in more depth the idea of tapering. In the end, I don’t see the Fed making a change to policy just yet, but it’s coming.

The jobs data has and is getting better. The word “better” doesn’t mean stellar, but it does mean clearly improved.  At the current pace of new job creation, some reports I’ve read point out that it will take nearly 7-years of new jobs growth of at least 200,000 new jobs per month before unemployment gets back to where it was prior to the Great Recession.  

House and Senate negotiators reportedly reached a compromise tonight on the budget. I don’t know about the debt ceiling issue but the budget supposedly covers a two year period. Now this compromise has to be sold to voting members of Congress. I’d factor in that another government shutdown is not going to happen, which is good news as long as spending and taxes don’t increase.

Back to tapering. There are dissenters concerning the employment base the government uses to calculate unemployment rates. Even Chairman Bernanke has acknowledged the fault in the base, so this not new news. Many like me think that the real number of unemployment is much higher than the 7% the government reported this past Friday. It’s probably closer to 11%. However, going down that road isn’t wise as a trader since in the end it doesn’t accomplish much and can stop you from adjusting your thinking as to how main stream traders approach Fed numbers. I’ve found that at least understanding “herd” mentality that moves the markets, whether you agree with it or not to be very important. Academia just doesn’t do the job.

Look at today’s markets. Stock indices have given back only a small part of their gains since Friday’s Non-Farm Payroll Number. On the other hand, bonds and notes have rallied. The Dollar has fallen and metal markets have rallied sharply. This is not what I’d expect to see on the first round or first formal announcement of tapering. In fact just the opposite reaction is what would be expected. Some might or will say that the market has discounted the Fed considering tapering now. I’d agree with that thinking given what’s been said in a number of speeches delivered by regional Fed President’s this week. Thinking these Fed members won’t discuss tapering in a more sincere manner at the FOMC Meeting would be folly. However, since this meeting is also important because it’s ceremonial in nature. It’s the handing over of the Fed to Ms. Yellen. As such, I don’t see Chairman Bernanke’s last major official act to be one of saddling Ms. Yellen with a new path. 

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As you can see on the Seasonal Chart above, there’s a strong historical tendency for gold prices to rally from mid-December into year end.

As you can see on the above chart, the chart pattern continues with one of a higher high and a lower low. This means the Swingline Pattern, the dark brown line connecting the highs and lows on the weekly bars is neutral.

The Daily Chart which you’ll below has resistance near the 1280 level. You don’t see a lot of resistance on the Weekly Chart until prices get up to 1312, the 18-Week Moving Average of Closes. I interpret this to mean that while the shorter-term Daily Chart shows the trend has turned up, the longer-term Weekly Chart is not going to easily change its trend. In fact in order to change the chart pattern right now, prices would have to rally over 1359.7. Even if that occurred, the chart pattern would not be bullish as the chart pattern would be one of a lower low and higher high. What’s more likely is that the rally take place now that sets up a rally of the 1280-1312 price range and ends in January with prices coming down again, probably testing or making new lows.

Keep in mind that on the Weekly Chart, due to prices trading under the 18-Week Moving Average of Closes, the market bias is to the downside and you should be looking at its 18-Day Moving Average of Closes as a resistance point where the market will stall out.   

The above chart is that of the Comex Gold, February 2014 contract.

I marked off with arrows that point up the Swingline lows. The Swingline pattern is one of higher lows and a higher high so this indicator has confirmed it’s in an uptrend. In addition, prices closed and are trading at this moment over the 18-Day Moving Average of Closes, 1247.90, which is the red center line going through the dashed black Bollinger Band lines

The first key resistance level on the Daily Chart is the Bollinger Band Top, which comes in at 1284.7.

The fly in the ointment is that the Slow Stochastic Reading is overbought with the “K” line having a reading of 71.56. There’s several ways for the Slow Stochastic Study to resolve being overbought. Prices can fall back, prices can go sideways or prices go up and in the process, change the Slow Stochastic Reading to one of being embedded.

There’s no way for me to tell you how this gets resolved right now. What I can tell you is that the Daily Chart is no longer in a downtrend. That’s something I haven’t been able to say in a very long time.

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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 Wednesday, 11 December 2013 | Digg This Article