DAN NORCINI'S WEDNESDAY COMMENTS

Hourly Action In Gold From Trader Dan


Posted: May 05 2010 By: Dan Norcini Post Edited: May 5, 2010 at 4:23 pm



Filed under: Trader Dan Norcini



Dear CIGAs,

There was continued pressure on equities overnight and into today’s session as fears spread that the situation in Greece is going to spread further into the Euro Zone. Portugal, Spain, and Italy are now the prime candidates. Some are going as far as saying that the Euro zone is going to break up. Such thinking will bring safe haven buying into gold especially in Europe which is exactly what we saw. Gold in euro terms remains very strong coming in at the PM fix above the 906 level. Clearly, investors on the Continent are very worried about the health of the Euro and are buying large amounts of gold. This safe haven buying is also going to continue to support Dollar priced gold which is why the gold bears at the Comex cannot crack the market lower as they have done in the past even as the entirety of the commodity sector is getting sold off by hedge funds and the US Dollar is floating ever higher.

About mid-morning the US equity markets staged a bit of a recovery upwards which brought about a round of short covering as well as some fresh buying in the commodity sector. That allowed gold, which had already begun coming off its worst levels and moving back towards unchanged to come firmly into the plus column.

Open interest readings indicate that fresh shorts were put on in gold yesterday. Today some of those are getting squeezed out almost immediately as they are underwater. I find that quite astonishing because you have to ask who in their right mind would be so eager to establish fresh shorts in gold when it is making all time highs or very new all time highs in terms of the European currencies. At a time when fear of currency stability is foremost in traders/investors’ minds, who is so anxious to sell the safest haven of all? The answer to the question is its own explanation because no one “in their right mind” would do so. Yes, there is the computer algorithm reflex selling occurring but that alone is insufficient to explain the rise in open interest for the total would have fallen were it only long liquidation that was occurring. There are clearly sellers present whose intent is to discredit gold in times of crisis as a reliable safe haven. They will fail.

Please see the chart for the technical support and resistance levels.

The rebound in the equities also brought the Dollar down somewhat off its best levels of the day as some traders decided to step back and evaluate where the wild action of the last two days has taken things. That pause in the Forex arena did not last long however as fresh sellers of the Euro emerged after lunch and crushed it lower once again. The ECB is going to regret getting their wish for a weaker Euro responding to complaints from exporters on the Continent. Currency events can quickly get out of hand to the point where they threaten the very stability of a nation. In this case we might even see some half-hearted attempt by the ECB to intervene to attempt to slow the decline in the Euro and prevent a collapse. Such an event might not be that far off if the selling accelerates. The alternative to doing nothing is that remaining confidence in the currency begins to erode further which engenders a vicious wave of unstoppable selling. By then, only drastic measures can save the unit but at the cost of wrecking the entire economy.

The flip side to all of the Euro’s woes is that the Dollar has broken out to the upside on the technical charts as the weekly now shows that there is little between it and a run towards 86.60 – 87. Once again, the Dollar is not moving higher due to any inherent strength in its fundamentals but merely because it is not the Euro. Markets are funny things – they can willingly choose to overlook many things at times and seemingly become tunnel vision oriented but there is one certainty in the marketplace that no amount of self imposed ignorance can change – that is the fact that the US government is continuing to issue trillions of the little things out of thin air and that the problems many of the individual US states are facing are every bit as severe as Greece’s or Spain for that matter. For now, and I wish to emphasis, the “for now” bit, the Dollar is the safe haven currency of choice along with the Yen to some extent although that currency draws its strength not because of anything related to the Japanese economy but because the majority of Japanese government debt is held by its own citizens allowing them to perhaps weather a credit crisis much better than others who are not as wedded to it as the average Japanese citizen is to theirs.

The HUI closed fairly well yesterday all things considered and seemed to separate itself somewhat from the selling frenzy as that session came to a close. Today, it was back down once again as early morning weakness in the global equity markets pulled the shares lower but it too managed to work higher and come into the plus column around mid-morning. When the equities got hit by another barrage of selling in the afternoon, the HUI surrendered its gains and moved back into the negative column. So far it is managing to bounce off the rising 20 day moving average but it needs to close above 460 again to firmly turn the tide back in favor of the bulls. The bears will try to force it down below the 444 level on a close if they are to gain the advantage.

Crude oil could not hold the $80 level (motorists, airlines and trucking industry folks are all celebrating its failure do so so) although the bulls are certainly trying to get it back over that line. Technically if it cannot recapture $80.50 and soon, it will have turned the daily chart decidedly negative and engender a sell the rally mentality unless or until it can close over $84.

Bonds continue to be the recipient of safe haven flows although they have come well off their best levels at this point in the session. They keep easily reaching the upside resistance levels I have mentioned in my recent comments with relative ease although today’s fade from the best print might be signaling that some guys want no part of them at current yields. Personally I wouldn’t want any part of them at current yields seeing that the government is busier than a one-legged man in a butt kicking contest manufacturing more of them out of thin air.

Let’s see if the stock market can manage a move well up off the lows going into the closing bell. If it does not get itself above the 50 day moving average, equity bulls are going to find themselves in serious trouble technically. If it does, bulls will be cackling that a bottom has been found and the market can now begin to consolidate before making another leg higher.

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/05/May0510Gold.pdf