With Sunday’s night’s modest show of strength, our focus shifts to the bullish pattern shown in the accompanying chart. It is straighforward in demanding that bulls prove their case with a strong close above 808.70, the Hidden Pivot midpoint. Once decisively past this resistance, February Gold would have what looks like an easy shot at 876.20. For now, though, we’ll make 808.70 our minimum upside objective. Night owls can use the c-d midpoint of the pattern shown (assuming it develops as indicated) to attempt bottom-fishing.
COMMENTARY for Monday
Rick's Picks for Monday
The Gold Bugs Index did everything we could have asked of it on Friday and then some. By exceeding the minor Hidden Pivot target shown in the accompanying chart as well as the peak to the left of it, it showed an appetite for munching into the shelf of supply created last week between around 211 and 225. However, it would take nothing less than a surge to 268.07, just above the small peak recorded on October 14, to turn the daily chart bullish. _______ UPDATE: HUI easily ate through the supply on an opening gap of almost 10 percent. Now for the heavy lifting. Upside potential over the next 5-6 days is to as high as 280.42, but first the midpoint resistance at 236.02 will need to be ovecome — make that, obliterated.
On the 5-minute chart, the March contract had gone about as far as it could go Sunday night, hitting the 9.665 target shown within a single tick. This doesn’t necessarily mean the rally is over, and it would in fact be a bullish sign for the near term if the futures were to get second wind, mustering the modest leap it would require to surpass Friday’s 9.700 peak. That would open a path up to around 10.150. _______ UPDATE: Silver has easily exceeded our benchmark this morning and now looks bound for at least 11.005 over the near term. Any intervening pullback to the midpoint, 10.070, should be regarded as a buying opportunity — presumably a tightly stopped one initiated at an abcd midpoint or ‘d’ target.
We hold a January 90 call that was purchased for 2.34 last week with IBM plummeting. Let’s be a little ambitious, if not quite greedy, by offering a single December 90 call short against it for 1.80, good-till-canceled. If this order fills we’ll have legged into a nearly riskless calendar spread that could pay for your subscription. I’ve included a snapshot of an option calculator that tells why Big Blue would need to reach $88 (or so) by Friday to get our order done. From a Hidden Pivot perspective, IBM looks capable of 88.21 over the near term. However, to get there the stock would first need to move decisively above the target’s sibling midpoint, 81.76.
Given that the futures have not created any positive impulse legs on the daily chart since September, the burden of proof remains with the bulls. They were acting pretty frisky Sunday night, but that augurs nothing special, since Sunday nights often birth whatever flaky ideas have gestated over the weekend. Is Obama’s modest plan to create 2.5 million WPA jobs bullish, or bearish for investors? We’ll let history judge, but there’s nothing to suggest that FDR had much success with this plan the first time around. Regarding the Mini-S&P, it was pussyfooting with a midpoint resistance at 879.50 at press time (i.e., 9:20 p.m), but if it gives way, look for the rally to continue to at least 891.25. That target is not shortable, however, because it coincides with a peak made on the way down last Monday when stocks collapsed. What fascinates most about the hourly chart, however, is the 969.25 target shown. The pattern that produced it looks pretty sexy, and so any two-day close above the target’s midpoint sibling, 891.25, should be regarded as a warning of an impending moon shot.
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Take any dozen good reasons for being bearish right now and they still don’t equal the bullishness of the chart shown. The undeniably compelling rally objective is 13085, a 4.8% move from current levels, and one can only surmise that the dusting the 12158 midpoint received on the last pullback (12/28) all but clinched a finishing stroke to the higher number. Moreover, it implies that bears shouldn’t get their hopes too high even if, in the next few days, the Dow plummets 324 points to retest the midpoint support. As of now, that would signal not weakness, but a screaming opportunity to get long. Hard to believe, really, but that’s what the charts say.
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Dollar’s Last Gasp Eludes Gold Bugs
by Rick Ackerman on December 8, 2008 6:13 pm GMT
Is the dollar about to break? The question is crucial for gold bugs, since the greenback’s strength has kept a lid on bullion prices since last March, when the dollar embarked on a 25% rally from historical lows. Over the same period, gold has dropped about 28% after hitting an all-time high near $1048. We see no technical evidence these trends are about to reverse, but that could change if the Dollar Index, which settled on Friday at 87.12, were to drop by about 1.5 percent in the next week or so. We’ll explain in a moment.
(Click on image to enlarge)
Why the dollar should be so strong is another question that has vexed the hard-money crowd, but the answer is simple: A massive, global short position against the dollar is being unwound. Remember, anyone who owes dollars is implicitly short them – and also implicitly hoping for inflation, since that would allow borrowers to repay creditors in cheapened dollars. In the past, servicing dollar loans was easy for most borrowers, since credit was plentiful, collateral values were rising, and it was easy to keep rolling the loans forward. Now, though, much of the collateral has become suspect, and creditors (other than the U.S. Government) are no longer able to provide easy terms. They are in fact demanding that borrowers settle up in cash, and this has pushed the dollar higher. Similarly, a short-squeeze has been pushing up the yen, but even more steeply. That’s probably because many trillions of yen that were borrowed from Japan’s central bank at rates of one percent or less were used almost exclusively for leveraged speculation.
Paradoxical Strength
How long is the dollar’s paradoxical strength likely to last? Our guess is that it will persist for as long as deflation continues to overwhelm the inflationary nostrums of the central banks. Right now, it’s like a contest between a grade school football team and the New York Giants. While it might seem like the trillions of dollars the Fed has put into play amounts to big money, it pales in comparison to the tens of trillions of dollars that have vanished from the financial system. Debt deflation is the cause of this, and it could take another six or seven years to runs its course, according to followers of Kondratiev Wave Theory who correctly predicted deflation well ahead of the event.
So why should a 1.5% drop in the Dollar Index, from 87.12 to 85.82, be viewed by gold bugs as a sign that deflation is losing its grip on precious metals? According to our technical runes, that would test a key Hidden Pivot support (see chart above) whose resiliency holds clues to the dollar’s future. If the support fails to produce a bounce, however �’ or worse yet, the index closes for two consecutive days beneath it — that would suggest the dollar’s rally is starting to sputter out. This could conceivably occur if two or three consecutive Treasury auctions draw relatively few buyers. They are still turning out in droves, but we think their absolute preference for Treasury debt over high-grade corporate paper will eventually come to be seen as a manifestation of mass mental illness. Meanwhile, although we are willing to concede that a hyperinflation may be lurking somewhere down the road, we do not think that it will come in time to save debtors. To think otherwise is to implicitly believe that you and I will eventually be able to pay off our mortgages by selling our homes for quadrillions of dollars, or by using a tiny fraction of our billion dollar paychecks.
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