Tuesday, October 12, 2010

Last week's forty-dollar drop in the gold price looks a lot more like a bullish pullback than a bearish impulse leg, and as a result we have a pair of new upside targets to add to our list.  The plunge bottomed just ahead of Friday's non-farm payrolls report, after which buyers ran the price back up a quick thirty bucks.  Has a larger correction begun?  Is it time for gold to consolidate sideways for a while?  Or will the $200-plus rally get right back in gear?  If we knew what the fewest market participants are expecting, we would have our answer.  Here's a Hidden-Pivot based scenario: gold makes a new all-time high by four-and-a-half dollars but is stopped by the midpoint pivot of the new pattern, shown in the attached graphic.  More consolidation during the seasonally quiet month of October ensues.  Then the bull returns with a vengeance.  Just a scenario.  If the 1370.5 midpoint gives way easily, we have familiar targets at 1381.7 and 1400.8, and our new "D" target would be next at 1415.4.  The swoon last week probably doesn't give us good downside objectives due to the exact double-top marked in the attachment, which is a poor substitute for a "C" point.  (Posted by Doug McLagan)

The nascent rally would begin to command our respect if it can hit 78.70 today, since that's where the daily chart turns bullish.  If you want a more sensitive tripwire, however, use 77.93, since that's where the five-minute chart would in theory turn short-squeezeable. This is show hypothetically in the accompanying chart.

It's been almost exactly two months since bears had a day worth savoring, and that's why I've raised the possibility in today's E-Mini S&P tout.  Futures were falling overnight, but only to the extent they were being manipulated lower for the benefit of buyers.  However, this con-game could mutate into fear if the futures are unable to get more than a few points of loft on the opening.

The futures were slip-sliding away shortly after midnight EDT, down the equivalent of 70 Dow points. My immediate target is 1151.50, a Hidden Pivot support that lies 1.75 points beneath the so-far overnight low, but because two of the three price coordinates are poorly defined, I wouldn't attempt bottom-fishing there unless you know how to do it with "camouflage."  Keep in mind that the daily chart, and not just the hourly, would turn very bearish on a drop today to 1127.00.  That's the equivalent of 225 Dow points, but a slide of that magnitude is hardly inconceivable. The last such selloff occurred on August 11, so you could say we're overdue. _______ UPDATE (11:15 a.m. EDT):  Although the futures did bottom overnight at 1151.75, a single tick from the target, camouflage entry opportunities, even on the 3-minute chart, were difficult to find. The first such place I can identify was at 1156.75 (8:33 a.m.), and although the C-D leg reached the midpoint, clinching a small theoretical profit (or at least no loss), the futures went nowhere (other than into the usual opening-hour, gratuitous conniptions).