January 2010

The Dollar Index has traced out some fiendish patterns recently, but I like the one shown, which promises to deliver 76.08 to the downside. Notice in the chart how all three coordinates -- A, B and C -- are delicately carved from single bars.  The midpoint support has already gotten pasted, hinting of more weakness to come.

It took two months for a well advertised Hidden Pivot target at 1149.50  to be reached,  and so we ought to be impressed by the fact that the futures appear to be getting second wind just three days later. If and when they break out above 1149.50,  a Hidden Pivot at 1166.00 will make a logical target. It would be subject to confirmation by a possible stall at its sibling midpoint, 1147.00.

Silver is tracing out a rally pattern somewhat different from gold's. The immediate target is 19.030, and if it's hit, that would remedy nagging doubts that surfaced when the stock surged on Monday without knocking off the external peak at 18.990 recorded on December 4 (see inset).  If a rally today exceeds the target by more than three tickets, we could confidently infer that the key high at 19.500 from December 2 will not long endure.

Today's gold tout introduces a long-term Hidden Pivot target at 1274.70, and two others below it, so check it out.  I've also filled in the blanks on a gold chart to show how the 1138.70 bull "trigger" that I'd flagged could have been used to get long without much risk or difficulty.

When I projected a low in February Gold at 1107.70 yesterday morning in the chat room, I was pretty confident the Hidden Pivot support would be reached, since its midpoint sibling at 1122.50 had been exceeded by a very decisive $4, and because the pattern itself was close to perfect.  Instead, and much to my surprise, the futures turned on a dime at 1118.50, seemingly in the middle of nowhere, gaining $27 by the bell.   After-hours trading pushed the rally the few ticks higher needed to trigger the breakout above 1138.60 that I'd been looking for.  If you were looking for camouflage to get aboard at that point, although it came with great subtlety, as long as you applied the simple rules, it wasn't hard to find or to use (see inset). Looking ahead to Thursday, we should take encouragement if yesterday's precipitous reversal racks up a couple more "external" peaks to solidify the uptrend. That would imply a print at 1158.40 at a minimum, and it would put a midpoint resistance at 1175.00 in play thereafter as our minimum upside objective. That number is part of a pattern begun from 1028.00 just before Halloween, and if it completes to the target, that would imply 1274.70.

The big boys have been trading body blows in gold, producing a lot of violence but no clear winner, at least not yet.  We expect the buyers to prevail eventually, and we’d suggest that you take the odds if you find someone with enough misplaced confidence to bet the “Don’t” line.  Still, we’d be the first to concede that sellers can pound bullion quotes mercilessly on a given day if the news is right. Remember in early December when they socked Comex futures for a $60 loss on “news” that the Government’s made-up unemployment number had dropped by two-tenths of a percentage point, to 10 percent?  That was on a Friday, when fear and greed are typically running higher than on other weekdays. The damage was serious enough that bullion futures limped $50 lower before finding a bottom just before Christmas. Yesterday, it looked like bears had the good guys on the ropes once again. Comex Gold was trading around $1118, down $40 from the previous day’s high, and looking even lower, to at least 1107.00. That last number is a Hidden Pivot target, and it was as clear and compelling as could be. Lo, buyers flooded into the market for no apparent reason and turned the tide, racking up a $27 gain into the close.  We were mystified by this until we heard from our friend and longtime subscriber Jonathan Auerbach of Auerbach Grayson.  Here’s his account, right from ringside: Forget the Pundits “For background, I have a COMEX seat and regularly trade gold. So this morning I want to share with you my morning gold notes over what I believe was a prodigious confrontation yesterday in the pits. Don’t waste your time this morning reading the pundits on where gold is going.  Yesterday was an epic battle in

Here are some timely and very interesting observations concerning gold from our friend and longtime subscriber Jonathan Auerbach of Auerbach Grayson: "Occasionally I write a column about gold trading to a much smaller audience than the E B&P crowd. For background I have a COMEX seat and regularly trade gold. So this morning I want to share with you my morning gold notes over what I believe was a prodigious confrontation yesterday in the pits.... Don't waste your time this morning reading the pundits on where gold is going...yesterday was an epic battle in the pits between good and evil, bulls and bears, bullies and sissies, and ultimately concerted efforts at manipulating markets. The various legions that attacked and counter-attacked over the day turned over 215,000 100 oz contracts...the equivalent of $25 billion. "Yet at the end of the day despite gold being down at one point more than $30 from the earlier daily high little technical damage occurred and we look forward to seeing final open interest on Friday. The sellers played the knee jerk card suggested several days ago here that the interests of certain parties for a successful UST auction would not be met if gold's recent robust recovery continued. So get yourself a ringside seat for this morning's thrilla to see if the sellers have the guts (they couldn't have conviction) to face the buyers who keep getting up. Never forget the Auerbach Doctrine...You can only manipulate a market in the direction it wants to go."

Charts for Gold, Wheat and the Mini-S&Ps were filled with opportunity, making this an especially fruitful session. Bullion futures were sinking, and the evidence pointed to still lower prices. Even so, we found ways to speculate against the dominant trend with relatively little risk. Wheat also gave us a buying opportunity against a bearish backdrop. The camouflage entry spot we found was as pretty as they come, so this segment of the session bears a close look. The session concluded with a look at the E-Mini S&P, which was rallying from an exact Hidden Pivot midpoint. This is as we might have expected, since the Great Bear Rally of 2009-10 is never-ending.

A 586.08 target broached in the chat room Tuesday is still my minimum downside target for this correction. It is a Hidden Pivot midpoint, but if it is breached decisively we should infer that its 'D' sibling at 567.71 is in play. This matters because Google was a market leader in December, one of the few companies that seems able to make money hand-over-fist in a very tough economy. By implication, it would be bullish for the market as a whole if Google were to reverse and push above 611.39 this week without having reached 586.08.