February 2010

Yesterday's seemingly strong rally was all bluster when viewed on the daily chart, since it surpassed not a single prior peak of significance. In fact, it looked like a weakling on the hourly chart as well. So that we don't miss a sign of real strength this morning, let's set a benchmark at 1103.75. A print at that price would create an unambiguously bullish impulse leg on the hourly chart. More impressive still would be a print at 1119.75, since, once above that price, the futures would become a lead-pipe cinch to test supply near 1140.00.

Today at 11am Eastern time, in lieu of Rick's weekly tutorial for recent HP grads, I will conduct an hourlong webinar open to all subscribers.  Details will be posted in the chat room.  - Harry

As of midnight Eastern Time, gold is in the critical zone described in the tout.  Will da boyz defend the resistance line this time, as they did on February 3?  A quick look at the chart suggests that if they don't, the next objective is the 1126.40 high, and 1166.70 after that.  Stay tuned.  I've got what I need to run impromptu webinars, so what do you say we go wild with that while the adult supervision is undergound somewhere in Mexico?  - Harry

A robust pattern on the daily chart points downward to a midpoint pivot at 71.42, and to a D target of 67.15 which would be a seven-month low.  These targets are active so long as 75.69 is not touched or exceeded to the upside.  Traders attempting to buy the midpoint should be mindful of the prior low of 71.32 when positioning stops. ______ UPDATE (12:34 p.m. EST): Oil has rallied powerfully and negated our targets.

If the bonds are going to reverse their recent downtrend soon, they might be expected to do so at a midpoint pivot of 116^15, which can be bottom-fished with a tight stop.  The associated D target is 115^01, an area that will bear watching, as the midpoint of a larger daily pattern sits at the 115^10 level. ______ UPDATE (02:47 p.m. EST): The bonds have moved up enough to cancel our 116^15 and 115^01 targets.

Copper's feisty rebound from the February 5 low has surpassed an important prior high on the daily chart and looks set to continue.  Action at a midpoint pivot of 3.1432, near current levels, should be telling.  A pullback from there could provide camouflage that enables traders to get long with limited risk.  Let's use a move above the prior high of 3.1540, just above the midpoint pivot, as our signal that the sibling D target of of 3.2525 is within reach. ______ UPDATE (08:10 a.m. EST, Feb 17): The midpoint at 3.1432 indeed proved to be the key, but pivoteers needed to use it creatively by buying it on the return trip from above.  This would have worked perfectly, as copper has since rallied by more than twelve cents a pound, worth as much as $2,677 per contract.  The 3.2525 target was reached and surpassed, and we notice that the 0.618 Fibonacci retracement level for the large decline beginning January 7, which came in at 3.264, was also exceeded today.

The critical zone for gold is between 1106.80 and 1112.00, where a cluster of prior highs on the hourly chart intersects with the prominent descending resistance line on the daily chart.  Fireworks could begin in this area, especially with a print exceeding 1112.00.

We wrote here the other day that once the bailouts and misguided stimulus attempts fail, the U.S. will have to start from the ground up to rebuild the economy. “But what mechanism can be used to bring back all the manufacturing jobs lost to China, Mexico, Taiwan over the last twenty years?” a reader asked in the forum. “It seems 80 percent of the population wants common-sense solutions, but the political meat grinder has its own agenda.”  We replied as follows: We'll need to find our way back by producing services and goods that yield a comparative advantage for U.S. labor globally.  That advantage would exist today if, since World War II, we had saved and invested most of our capital rather than consumed it and gone deeply into debt to live beyond our means. With Japanese levels of savings and investment, U.S. manufacture of steel, cars, clothing and such would be competitive with the most efficient producers in Asia and Latin America, much as our ability to grow and process corn -- a business that has received huge investment -- has remained competitive with the lowest-cost producers in the world.     Two economic factors suggest it's going to be a very long road back -- not mere years, but decades.  First, we'll need to discharge our current debts, whether through inflation or deflation, so that we can begin to accumulate savings once again.  It is pointless to talk of the existence of U.S. household savings when they are dwarfed by much larger fiancial liabilities now on the books. The liabilities include, most signficantly, Social Security and Medicare programs that have been run as Ponzi schemes.  Both will continue to rack up future costs that have grown almost beyond reckoning. To get on sound financial footing, we will also need

The rally in the futures is facing four closely-spaced hurdles just above:  the 1098.40 prior high, the round number of 1100, a hidden pivot at 1102.40, and an "external" prior high at 1106.80.  The most bullish prospect immediately in sight would be a thrust exceeding all of these resistance points without pausing for rest. However, until the first, 1098.40, is touched or surpassed, a downside target mentioned here on Friday at 1057.40 will continue to exert magnetic force. ______ UPDATE (05:54 p.m. EST):  Gold traders on duty in the early morning had a chance to scalp about three dollars out of the pullback from two ticks above the 1102.40 pivot, but afterward the target was surpassed, thus completing the pattern and suggesting more upside to come.  The 1057.40 downside target was negated by the rally.