-- Posted Monday, 12 November 2012 | Share this article | Source: GoldSeek.com
We exited our short positions in gold for a modest but useful profit
when it broke out of its downtrend towards the end of October. It then
broke sharply lower on heavy turnover in a move that looks capitulative,
but afterwards turned and rose quite sharply over the past week. So the
question now is “has it bottomed?” Although the answer to this question
is “Yes, it looks like it has”, it also looks like it may back and fill
for a little while to complete a base pattern before a sustained
advance can get underway. COTs, particularly for silver, continue to
give grounds for caution and warn that the current turn may be the
B-wave trap of a A-B-C correction. We are aware of this danger and place
stops accordingly to protect us from it.
We can see the latest
action on the 6-month chart for gold below. Gold didn’t quite make it as
far down as our earlier defined downside target at $1660 in the
vicinity of its 200-day moving average, but reversed at a good point for
it to do so, just above this key average. Action last week certainly
looks positive, with it rising day after day on good volume, but by
Friday it was looking a bit tired with a “doji” forming just beneath its
50-day moving average. This implies that it may take a breather here
and back off a little to form the Right Shoulder of a small potential
Head-and-Shoulders bottom. This would be a “nice” thing for it do
technically, as it would set it up for a strong rise, and it will be
nicer still if it does just that and we buy on such a short-term dip. We
therefore look to buy or increase positions on a short-term dip towards
$1700, say in the $1705 area, with a stop below $1695 to protect us
from the C-wave risk mentioned above, or alternatively on a closing
break above $1742 if the advance continues, with a closing stop at about
$1718, which reduces the risk of a whipsaw – unless that is the
dastardly cartel are reading this.
On
the 3-year chart for gold we can see that overall it remains stuck in a
large trading range bounded by the nearest support and resistance
shown, although the way it has reversed near its 200-day moving average
looks positive. This chart makes clear the importance of the resistance
approaching the $1800 level, as this level has turned the price back 3
times already over the past year. What this implies is that if it can
succeed in breaking above this level it should then act as a foundation
for a breakout to new highs leading to a major new uptrend.
The
latest COT chart for gold shows Commercial short and Large Spec long
positions continuing to ease from the extreme levels of a few weeks back
which all but prohibited further advance. Positions are not yet at
levels which can be described as bullish, but at least there is now room
for renewed advance. Other than this observation, the latest gold COTs
are not much use in predicting the immediate outlook, although the
silver COTs continue to give grounds for caution.
Precious
Metals stocks are still in a clearly defined downtrend that began in
mid-September, as we can see on the 6-month chart for the HUI index
below, and would be buyers should generally wait until we see a clear
breakout from this downtrend before moving into the sector, and then
quite close stops should be set to guard against the risk that the
breakout is false move.
Of
crucial importance for gold and silver, and just about everything else,
is the outlook for the dollar. It has been picking up in recent weeks,
as we had expected, but now it is showing signs that its recovery may be
petering out at a somewhat lower level than we had earlier expected. We
had earlier figured that the dollar index would rally to a target at
about 81.70, close to its high of last January, to complete the Right
Shoulder of a Head-and-Shoulders top as shown on its 1-year chart below,
and it still could, but the action in gold in recent days suggests that
it may be about to top out here, just beneath the zone of resistance
shown.
If
the dollar rolls over and drops here, in addition to giving the
Precious Metals a boost it is likely to trigger a sharp rebound in the
broad stockmarket, which is now quite deeply oversold as we can see on
the 6-month chart for the S&P500 index below. This was why we
hastily took profits in our broad market bear ETFs on Friday.
Although
such a rebound may now occur, the longer-term charts for the broad US
stockmarket look pretty awful, which is hardly surprising considering
the prospect for shriveling corporate profits and the looming Fiscal
Cliff, so it the broad market rallies we will probably go back into our
shorts.
-- Posted Monday, 12 November 2012 | Digg This Article | Source: GoldSeek.com
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