DAN NORCINI'S FRIDAY COMMENTS

Hourly Action In Gold From Trader Dan


Posted: Apr 16 2010 By: Dan Norcini Post Edited: April 16, 2010 at 1:42 pm
Filed under: Trader Dan Norcini
Dear CIGAs,

The whooper that rocked the markets today was news of the SEC charging Goldman with fraud. That overshadowed everything else. Once Goldman’s stock led the way down, the entire financial sector was slammed and that took the entire equity market sharply lower.

It was out with risk and in with safe havens once again. That led the Yen higher as well as bonds which were able to break through that double top near 116^ 22. It also kept a bid under the Dollar. The result for gold was predictable at that point – it fell out of bed as money was withdrawn from some key commodity sectors in quick fashion.

The yellow metal fell through support at this week’s previous low near $1,145 falling to the second support level shown on the chart near the vicinity of $1,130. Gold will need to hold here to avoid a strong round of long liquidation.

The problem for Goldman is this now opens the door for buyers of the stuff they were peddling for recourse against the firm especially if they are found to be guilty of the charge. Who knows how that is going to end? One thing about traders is that they do not like unanswered questions so the general action plan is to sell first and ask additional questions later. It will be interesting to see how the stock market closes for the day however and whether enough players decide to buy the financials on a contrarian play. The big banks have been making obscene profits this year and traders might decide to look past the current SEC charges and focus on the upcoming earnings numbers. If that occurs, look for gold to move higher in the afterhours trading session.

As Treasuries surged higher, the yield on the 10 year note dropped down near 3.76% today. Who knows, perhaps the Feds chose the timing to go after Goldman Sachs to stop the 10 year from climbing back above the 4% level. I have become so cynical that I put nothing past these guys any more.

Crude oil experienced a sharp sell off as did copper but the grains held relatively firm as did the meats. That is encouraging as it indicates that money flows into the commodity sector did not completely reverse. That should bring some stability into gold once the initial knee-jerk reaction subsides.

For now, we have sustained some short term chart damage in gold but as long as it can hold above $1,130 it will be okay. Physical market demand will probably kick in Sunday evening as Asia comes online. Remember this is occurring as Asia is already into their weekend. Let’s see how things shake out on Monday to get a better sense of what lies ahead for gold.

The action in the gold shares is not surprising given the sharp selloff in the broad equity markets and the weakness at the Comex. If the stock market recovers, so too will the mining shares. For now, they have fallen into a zone between the 20 day moving average and the 40 day. The 50 day comes in near 414, currently about 9 points below where the index is currently trading. It will need to hold above this level to prevent a further fall to 400. For the bulls to get back on track again, the HUI needs a closing push above 438.

Even with the move away from risk trades today, the Dollar is having difficulty extending its gains above the gap formed by this week’s price action. If it can close above 81.05, it has a chance to move higher early next week. If it is unable to close the gap and hold it, technicians will see it as a sell signal. The jury is therefore out until later in the day.

How the bonds close today is going to be significant on the technical charts. A push above 117^00 will help the weekly chart and signify the potential to move back up within a broader wedge formation. Last week’s low near 114 is crucial if the long bond is to prevent a downside breakdown.

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/04/April1610Gold.pdf