Thursday, August 20, 2009

Let's see if December Gold can make the modest leap to 950.70 today that is required to refresh the bullish trend on the intraday charts. Yesterday's rally reversed a bearish impulse leg on the 180-minute chart, so we should be encouraged about the outcome. As of 12:40 a.m., the 15-minute chart was promising 948.00, provided the 941.50 low made three hours ago holds. Any decisive progress above that first number, a midpoint resistance, would hint of more strength to as high as 954.40.

If the futures rally into a narrow window this morning, pulling back from an intraday high anywhere between 14.155 and 14.195, use the ABC pattern to get long at conventional point 'X', since you'd have pretty good camouflage. For your guidance, I've drawn in the coordinates and the hypothetical rally/pullback in the accompanying chart.

Viewed on the daily chart, the apparent swiftness of the recovery from the plunge begun last Friday looks, well, unseemly, especially considering the steepness of the rally it was presumed to have been correcting.  Couldn't the bulls have waited for another day or two before leaping anew?   Whatever the case, we can ill afford to ignore the fact that the futures  slightly exceeded  an  important peak recorded last November before they took a breather. That is of course bullish, and the implications thereof will remain intact as long as the S&Ps don't take a 50-point header next week. 

All signs were pointing higher at the end of yesterday's regular session, although it was only on the lowly five-minute chart where Wednesday's rally managed to look like hot stuff. There's little point in projecting a Hidden Pivot top, since any thrust is destined to do battle with heavy supply around 1015.  The futures topped there on three days in the last two weeks, and a mere bluff is not apt to get past those tops without some frenetic short-covering to provide some cover. 

I had to check Edwards & Magee to see whether yesterday's weakness may have compromised the bullishness I inferred from the island gap reversal in this stock. My guess is that the renowned authors of Technical Analysis of Stock Trends would have seen it as a mutant specimen of the genre to begin with, since the two gaps do not overlap. In any event, if we simply look at it as a routine abc pattern, filling in the gaps with hypothetical, unbroken bars, as we are wont to do, a _____ downside target comes into focus, subject to a bounce from the _____ midpoint. In fact, the bounce has occurred from 158.00, so we might infer that a dive to _____ awaits if the midpoint is breached decisively.

We popped up on the "wrong" side of the inflation/deflation argument here the other day with a hyperinflation scenario that seems to us not just possible but likely. Although we hold fast to a prediction that deflation is going to run its course, throwing tens of millions of Americans into bankruptcy, before relief comes to debtors, we are persuaded that at some point well down the road the U.S. will throw the switch to hyperinflate.  Even so, we believe that the attendant collapse of the dollar will play out far more quickly than the collapse of the German mark during the Weimar hyperinflation of 1922-23. So swiftly will this occur, in our opinion, that the hyperinflationary spike will begin and end in mere weeks, leaving deflationary to dominate both before (as it continues to do now) and long after.  A contributor to the Rick's Picks forum, Ed M,, disagreed -- mainly, he said, because there is no precedent for so swift a collapse of a sovereign currency. We present his argument below, followed by our response, but also some interesting thoughts of Ed's concerning barter.   Here's Ed: "The idea that a hyperinflation would come and go in a few days or weeks has no precedent, and, as such I give it little credence.  However, the question for those owning [precious metals] concerning what to 'transfer' one's 'profits' into, is very relevant.  Furthermore, there is the issue of taxes on what could be, at least nominally, outsized profits. So, while leaving the question of what to buy momentarily behind, let me offer that arranging some sort of barter might be the way forward for [precious-metal] holders. "Choices of what to purchase will be more or less the same in future as they are today, but in what will likely be a chaotic