Hello and welcome back to CRI's CTS Spotlight,
081211: While the US dollar is little changed through these tumultuous times, many markets are moving dramatically. From blow off tops in the Swiss Franc, Gold and US Treasuries to collapses in many equity markets one thing that can't be said is that there is no action out there. Most notable this week include fresh sell signals in Copper, Eurodollars (US corporate short term interest rates) and both the worlds' commodity currencies (Cdn. and Aussie dollars). Additionally, one market little mentioned by the media yet could see some extreme bearish action in the near future is the Soy complex.
This week's focus is on the gold market. As regular readers, you ought to have an idea of where I expect the US dollar index to go over the coming weeks/months so I thought we ought to take a real good look at Gold too.
Here then is the weekly continuous gold futures chart (link) going back well into 2009. Keep in mind the price of gold fell in tandem with equity prices through the 2007-2009 bear market (as it usually does) so seeing a steadily rising market over the past couple years should be of no surprise as equities have come back too. This - right off the bat then brings to mind an interesting conundrum (we know that historically gold prices track inflation fears and yet falling equity prices by definition are deflationary). Since the break in equities just a couple weeks ago, gold itself has gone 'parabolic'. At the same time the US dollar index hasn't moved more than 2% against any of its major pairs (Except the Swiss Franc) and both the world's commodity currencies have well defined weekly double top (bearish) price patterns working. And if all that were not enough, futures commissions themselves have raised the margin requirements for buying gold futures. So needless to say, there are many warnings signs. But unfortunately, one must respect the old John Maynard Keynes quote, 'Markets may remain illogical far longer than any of us can remain solvent' (link). So lets take a look at what is happening and then ponder what might happen down the road. CRI-WCTS has had the gold market tending higher now for 24 weeks and its long standing upside technical target (bull flag formation) has been hit ($1717.80). Additionally, two speed/resistance lines suggest there ought to be a significant barrier at or near the same area (represented by Point 'A' on the chart above). While no 'top' currently exists one always has to ask themselves - are further gains really that realistic. At least one should have taken partial profits on long positions when the target was hit - at most you are completely out. From just a pure trading experience perspective, I myself have noticed that upon the completion of most bull flag pole formations there is a high probability of a period of consolidation for those gains. The consolidation may lead to another bull flag pole formation should it resolve higher - but it is in the consolidation and subsequent resolution one gets validation. Lets play devils advocate for just a moment and assume that we have indeed entered a 'topping' zone and ask ourselves, 'If we are indeed near a top then what might a correction look like?'. A pullback into the $1400 to $1500 range (Point 'B' on the chart above) seems the most realistic scenario should prices start acting 'normally'. This correction would bring prices back to the 50% rule (and by now I sure hope you have come to appreciate this simple yet powerful tool). More importantly, it would bring prices back into the prevailing trend channel. I will finish off this commentary with the fact that I have included Point 'C' so that if the cycle analysis forecast (refereed to in last month's post) does indeed come true we have a good idea of where serious market support currently exists on a by-yearly basis.
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSIthe_rational_investor@yahoo.com
http://www.the-rational-investor.com
No comments:
Post a Comment