Hourly Action In Gold From Trader Dan
Posted: Mar 17 2010 By: Dan Norcini Post Edited: March 17, 2010 at 1:43 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
The bulk of the weakness in the US Dollar today can be attributed to a short covering rally in the British Pound. That market is so heavily loaded with speculative short positions that any push higher through notable technical resistance levels will easily spark a bout of buying in this market which has been beaten to a bloody pulp since the beginning of the year. Early in the session it broke above the 20 day moving average which is a key level for many of the trend following funds.
With the Euro oscillating around the unchanged level and the Yen lower, it was strength in the Pound plus the commodity currencies that weighed on the Dollar. For the Dollar to drop sharply lower it will need the participation of the Euro however, as that currency has the largest weighting in the basket of currencies comprising the USDX.
Gold which had pushed higher and broken through the selling barrier erected by the bullion banks near $1,130, was unable to maintain its footing above that level without the Euro’s participation in the short covering Pound rally. As soon as Sterling faded, the Dollar inched back higher and gold moved lower further reinforcing the significance of the selling resistance in place above the market at $1,130. Once Sterling moved higher again, the Euro tagged along for a bit and gold moved back off its lows. For gold to break free of its stranglehold, bulls must dislodge the bullion banks from their perch at $1,130 and do it in convincing manner.
Beneath the market, gold is still seeing buying coming in near $1,100 and is maintaining its six week old uptrend of higher low and higher highs.
For now we remain mired in a trading range with neither side being able to gain a clear cut advantage.
I continue to watch copper for signs of an upside breakout. It has run into selling near the $3.50 level but is bouncing higher this morning after moving lower over the last week. With crude oil above the $80 mark and copper also higher, especially alongside of another surge higher in the US equity markets, it is safe to say that the “recovery” mindset is becoming more entrenched.
Yet, it is still odd that bonds will not move lower confirming this. Evidently that market is being influenced by the Fed’s announcement confirming the need for low interest rates for some time. All we need now is a resumption of the “Goldlilocks” word to describe the economy – not too hot, not too cold, but just right. For now, the equity gang sees the low interest rate environment as a reason to load the boat on equities.
Perhaps they were also reading the reports from Panasonic that their new 3-D TV’s sold out within their first week of release here in the US. If consumers are willing to plop down 3 G’s for a box out of which things come flying at them, then the thinking is that the consumer segment must be willing to spend more on lots of other toys and gadgets and that the economy is on the mend.
It is rather interesting to take a long term view of the S&P 500 chart on the monthly. It shows a double top near 1575 – 1585 with the former made in March 2000 at the height of the equity mania and the latter coming in October 2007. The same chart also shows a double bottom with the low near 767 made back in October 2002 followed by the spike low made early last year in March that pushed above the 750 level for the monthly close.
Basically we have the S&P in a decade long trading range between 750 and 1500. With the price action of the last two days, it has pushed just above the middle of this 750 point range and is on target technically speaking to make a run towards 1235 – 1240, or the 61.8% Fibonacci retracement level. That region is also the confluence of the downtrending 40 and 50 month moving averages which will make it a tough nut to crack should prices be able to work to that level. The 10 month moving average is trending firmly higher and just made a bullish upside crossover of the 20 month last month. If bulls can push this index above 1240, then they have a legitimate shot at moving it back towards the top of the decade long range near 1500.
Only if the bears can push the monthly close below 1025 can they hope to regain the initiative.
For now, it certainly appears that the low interest rate environment has succeeded in reflating the stock markets. The moment that changes, the bears will be in the driver’s seat once again especially with these rather rich valuations and rosy projections. It is way too early to be concerned about mortgage resets but later this year those will begin to occur and when they do, equity bulls had better hope that the labor markets have shown a decided improvement for the better.
I said all that to say this – the mining shares are riding some of the wave of buying that is pushing the broader equity markets higher. We could even see the hedge funds moving to ratio trades involving the shares on the long side and bullion on the short side. That remains unclear but in an environment in which equities are moving higher, it would be a logical trade. We will know their strategy by keeping tabs on the HUI/gold ratio.
Today has the HUI knocking on the door of last week’s high near and just above the 430 level. The index will need to move through this level for the majority of shares to kick off some sort of trending move higher and break the choppy range trade of late. The stronger the S&P, the better the chance they have of so doing.
The Dollar looks sloppy here but it has thus far failed to attract sufficient selling interest on its move lower this week to force out the speculative longs in a large way. Volume has simply dried up on the move below 7990 indicating a reluctance on the part of the trade to follow it down, at least for today. We have two more trading sessions left in the week and perhaps that will make the chart a bit more decipherable. A fall through support in the Dollar accompanied by good volume would do wonders to help gold break out of its box. That means all eyes are on the Euro. If the bulls can squeeze the Euro bears as they have done the Sterling bears, the Dollar is going to get whacked. That has been a tall order thus far.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/03/March1710Gold.pdf
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