4-15-2010
Since last week’s report, several important events have occurred.
The European Union and IMF joined forces this past weekend to provide Greece with a rescue package that would “supposedly” allow Greece to borrow funds, well under market rates, as long as Greece meets the terms of the rescue plan. Today Greece has reportedly asked for meeting with the EU and IMF. One of the reasons for the meeting has to do with yesterday’s yield on Greek 10-Year Notes, which rose backup to their all time high.
My take on this is that it is common knowledge that Greece has to roll billions in debt in a very short period of time. Therefore, markets do what markets do. They put the pressure on when they know they’re in the driving seat. This pressure is coming in the way of the market asking for higher interest rates than Greece wants to pay and forces Greece to either pay these rates or tap the rescue plan. Tapping the rescue plan will not be easy for Germany given the unpopular support amongst the German citizenry for a Greek bailout and the fact that German elections are right around the corner. Think of this as bluff poker with the marketplace calling the rescue plan’s hand.
The Chinese President has come to America and gone. Singapore allowed its currency band to rise yesterday, probably in anticipation of the Yuan soon being allowed to move higher. How much China allows its Yuan to rise is a subject being thrown around. I don’t believe for a moment that China will do anything radical. Rather the Chinese may allow the Yuan to rally by a few percentage points, not the double digits that many US politicians say it should rise.
Weekly Gold Chart
Last week I stated in this letter that the trend on the Weekly June Gold Chart had turned up and that the next upside target was likely the year’s high. At that time the high was 1164.1. That target has since been hit.
The trends on both the Daily and Weekly Gold Charts are up, but I’m bothered that both have hit their initial price upside targets, their respective Bollinger Band Tops.
Bollinger Bands are an algorithm that I discuss and explain in my daily videos. These videos can be viewed in our charting software and on YouTube.
The concept behind the Bollinger Bands is that prices will trade within the upper and lower bands, 95% of the time. This also implies that 5% of the time the market can trade outside of the bands. I use these bands as potential resistance and support numbers. The resistance band is what has just been tested on the Daily Chart and what is now being tested on the Weekly Chart.
One of the other important studies on the chart is the Slow Stochastic Study. It is overbought on the Weekly Chart since K reading is over 70, with a reading of 85. The D reading is 67.56.
Daily Gold Chart
Below is a Daily Chart of gold. Each individual bar on the chart represents one day of trading. In “red” I have plotted the 18-Day Moving Average of Closing Prices and in “black”, the Swingline Study.
Let’s analyze this chart.
First, the Swingline Study has a chart pattern of both a lower high and a higher low. I define this as a pattern of consolidation, with a bullish bias. Second prices are trading over the 18-Day Moving Average of Closes, which I term as bullish. Third the Stochastic reading is embedded, which is again a bullish signal.
The main indicator I am currently focusing on is the SSTO (Slow Stochastic) chart study. It is currently embedded which I interpret to mean that as long as the K and D lines remain over 80, price pullbacks represent a buying opportunities. If the K line, the red line on the study closes under 80, I would no longer want view the market this way and would in fact not want to be long this market.
Does this mean not to be bullish? Absolutely not, especially given that on Wednesday Evening I issued a buy signal in my nightly update that has turned out to be the day’s low. The question now is whether or not Stochastics stay embedded or not.
Dollar versus Gold Prices
Last week I said “For the first time in a while, gold and the Dollar are moving in unison to the upside. I think this is due to investors not wanting to own EU currency. In fact I think this “thinking” is also part of the reason for Crude Oil’s rally”.
As you can see, the inverse relationship has changed a bit. Focus on the past few days, the peaks and valleys are occurring in unison. It’s hard to call a few days a trend, but something new appears to be going on.
Summary
Last night I got lucky. I predicted the low of the market today. In fact, I recommended a purchase of the mini gold at 1150.6 and told those who follow my oral and written updates to take 50% profit, at the market on my 11:30 AM CST update.
I continue to favor the long side. If after a bit of consolidation prices start moving up again, the $1200 level would be the next logical target.
Those that get my updates and follow them are long both gold and silver. In is in those reports that I put out my specific entry, exit and stop points.
Twice Daily Updates
The key to keeping up with my trade recommendations is through my Twice Daily Updates and my oral updates.
This Weekly Metal Report is designed to provide you with my current "take" on the gold market. However, what happens when my ideas change before I write my next report? That's where my Daily Updates come into play.
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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 performance is not necessarily and indicator of future performance.
