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Friday, June 01, 2012

COMPARING PATTERNS





I have been looking for a rally in Gold as readers know, and we are getting a break out upward today. In what has to be the biggest upset since Princeton beat UCLA in basketball, the government revised downward a prior month in NFP as well as "allowed" the rate to rise. My feeling on that is that I am  more sure that the government is doctoring these numbers, than I am that there is such a thing as sliced bread. If that is an accurate view, this means the real truth is much worse than this. I can tell you from my other business interests, the economy is in terrible shape regardless of what any pinhead from DC might try to tell me. It was suggested by a certain traitor on CNBC ( a conservative amongst liberals ), that the government is aware that people are getting suspicious of these reports, and as a result, they are making them closer to the truth. A few eyebrows were undoubtedly raised in the back offices over that take.

This ignited what at the moment is a short squeeze in Gold. We will see in ensuing days if this is a trend change. I am sure others do what I am doing here, compare chart patterns for similar looks to see what might be reasonably expected to happen next. I recall trying to buy the breakouts in Nat Gas the bottom chart, and I went long when the trend line I have on that chart was broken. You can see we have a very similar look in Gold today. I have the MACD on there since it is such a popular indicator people use, and it shows similar bullish divergences in both cases. I also have Will Val on there, a valuation indicator. In each case you can see we were in a significantly under valued zone prior to the breakouts. The COT report is different, very bullish in Gold, bearish in Nat Gas at the time.

Net net, this looks very similar to the Nat Gas pattern to me with the one difference being a bullish COT picture. In general, as I have said in here many times, the COT report is tricky to read. In this case to me the most important aspect of this situation is that the commercials are defending a major prior low by buying into the move that tested it. Natural Gas has no such situation in it's chart. That tells me that we have a better chance of a rally from here in Gold than we did in Natural Gas. You could certainly be long in Gold right now, but the more prudent play is to wait for a trend change and pullback, which could develop over the next couple of weeks.

The way the markets have been trading this could very well just fly and not pull back. However, buying break outs like this against the trend is not a high percentage play even though you catch big ones at times doing it. Generally when you have sideways action like both these charts show, the resumption of the trend coming in is how they get resolved. Due to this, waiting for a pullback to see if there is an entry that makes sense is the more conservative way to go here. Gold bugs have already mortgaged their pet rocks to buy more anyway, so you can't count on them to push this. They need new blood now.

Have a good weekend

4 comments:

Michael Tredr said...

speaking of new blood - someone was taking calls on what the nonfarm payroll number was gonna be this morning. I said that 150k was too generous of a number and suggested a more reasonable 130k. LOLOL!

Chris Johnston said...

It will be interesting to see what happens now it is pretty clear the mustard is off the hotdog and always has been. The lies they threw out are proving to be just that at a bad time for them.

Can you say QE3?

Michael Tredr said...

I guess - and let me preface this statement by saying I am guilty of this at times as well - but yeah; i guess that even a president can underestimate the double edged blade that is Leverage.

Vikas said...

There is already rumors about a new secret plan to save the EU. With the record number of shorts in the euro, every short covering rally throws off any drop in the S & P 500.

http://www.bloomberg.com/news/2012-06-03/ecb-eu-drawing-up-crisis-master-plan-welt-am-sonntag-says.html