Trader’s Narrative

With US dollar sentiment at historic lows, the dollar continues to be about as popular as a leper. In contrast, the yellow precious metal continues to be the belle of the ball. Today it closed at a new, all time high at the Comex. The December futures contract closed at $1045, decisively higher than even the intra-day high in March 2008 (when the fall of Bears Stearns lead to a panic).

Here is a short video covering the recent move and a look ahead at what’s coming up at the hard right edge of the chart (make sure to watch till the end for a bonus):

It wasn’t too difficult to anticipate a successful break above the hitherto challenging $1000 level. An analysis of the investor sentiment in gold revealed a mostly bland response to its advance this time around. Unlike previous rallies.

As well, gold’s seasonality was the wind at the back of its uptrend. However, as you’ll notice from the seasonality chart in the previous link, a pull back is to be expected for gold in October. At least, that’s what has been average historical pattern.

Checking in with the K-Ratio (the ratio of the price of gold to the Philadelphia Gold Bugs index), we see it in neutral territory:

This recent move helps to cement the long term uptrend for gold, however it isn’t smart to chase it higher. Once a decisive break through tough resistance like this is made, it is typical to see a pull back to that level again as it acts as support. With the seasonality weakness about to kick in, that’s what I’d expect to happen. So keep watching this market for a good opportunity.

Also keep in mind that there are many ways to play this. You don’t have to buy gold futures or the Gold ETF (GLD). There are many highly leveraged mining companies that provide a fantastic proxy for this precious metal. The K-ratio still has room to move higher, which means that relative to gold, gold equities are not expensive.

Finally, the bigger picture is the slow decline of the dollar. I expect a rally in the US dollar, especially as the sentiment is so extremely pessimistic. But the long term trend is clear. There are some rumblings in the background that oil producing Middle Eastern countries, along with China and Russia are working together to stop pricing crude in US dollars. As well, the Reserve Bank of Australia wins a gold star for being the first among industrialized nations to start on a tightening cycle.

With the second year anniversary of the 2007 market top coming up in a few weeks, here is a video which points out that the S&P 500 index’s date with destiny is also marked by two major technical forces:

The reason for a correction are piling up. We’ve already talked about sentiment and Lowry’s expectation of a correction. This is yet another reason to rein in any bullishness (at least in the short term).

While this rally has gone on longer than even the most optimistic bull predicted, don’t forget, we are still mired in a secular bear market. As the video mentions, we have yet to put in a higher low to denote that we have a change of trend.

Gold is once again at the magical $1000 threshold. It was just a few months ago that I talked about the precious metal and mentioned that I spied the sign of a gold top. That was in early June when gold was trading at $980. That was a great call because into early July gold fell to $905.

Here are various perspectives on gold’s current technical outlook and at the end, my own take:

MarketClub
On August 6th, in a video titled “Has the bull move in Gold finally arrived?” Adam from MarketClub explains why he was (correctly) bullish. At that time, gold was trading at around $965. It dipped slightly in the following weeks and then pierced the psychologically important $1000 line in the sand.

In a more recent video, Adam asks, “Is this the move we have been waiting for?“. To find out what he thinks now, click the link or graphic to watch the video:

He shows a long term chart of gold and talks about “energy fields” on the chart. This is Adam’s name for what most others call periods of contraction in price range, which often precede periods of expansion in price range.

Adam’s got a ‘hot hand’ right now in gold as he’s been correctly calling the direction for some time. To learn more about his approach, here’s a short introduction to MarketClub Alerts. Besides all the great material they offer, what I like about MarketClub is that they stand behind their product with a 100% no questions asked money back guarantee. That’s the touchstone of a reputable and solid outfit.

DecisionPoint
Carl Swenlin’s recent commentary on gold is also bullish:
Continue reading ‘Various Perspectives On Gold At $1000′

No, really. How high can this market keep going?

That’s the question a lot of people are asking. It isn’t surprising that once the S&P 500’s perfect head and shoulder pattern failed, prices rocketed higher - almost non-stop. We’ve had 12 consecutive trading days closing higher. That kind of streak is not only extremely rare, it is an unmistakable sign of surging momentum.

Now, many are pointing to a head and shoulder bottoming formation (on a larger time frame) and expecting prices to keep rising. Actually, I commented at the beginning of June 2009 that we may see a flag formation and then a break to the upside: Comparing Flag Formations: Then & Now.

Amazingly enough, we seem to be replaying the same price action that we had when we came out of the last bear market. The similarities are uncanny as I’ve mentioned more than once. So what’s next?

Below is a short video that briefly summarizes what the market has done and then finishes by looking ahead to what we may see next week and next month.

Click to watch video:

We took a look at the long-term chart of gold Monday. Here is a video with more short-term technical analysis of gold using Fibonacci ratios. Watch it till the end to get the outlook for gold: