October 2010

If we accept that yesterday's selloff was so transparently corrective as to have changed nothing about the long-term bullish picture in Silver and Gold, then we must also accept that the broad averages too will soon be bounding blithely higher, perfectly oblivious to the real world and driven by otherwise inert "stimulus" money.  Technically speaking, the first convincing sign of the E-Mini's resurgence would come at 1178.25, since it is there that a bullish impulse leg would become manifest on the hourly chart.  Night owls can try bottom-fishing at the 'p' of the still-forming abc downtrend on the right-hand edge of the chart.

In Wednesday's touts for Gold and Silver, I've introduced the concept of the "soft" impulse leg to extract more usable information from the respective hourly charts of these two trading vehicles.  It's encouraging that Gold, if not Silver, has turned higher off a midpoint support, but it will take more of a bounce in the former to lead bullion out of the woods.

Unlike December Gold, December Silver has paid no heed to a midpoint support at 23.515 created on the hourly chart by yesterday's nasty selloff. The implication is that the selling will continue at least to the support's 'd' sibling, 23.040.  Gold could wind up pulling Silver higher, but it might be the other way around, with Silver leading precious metals lower.  In any event, we should want to see a bounce exceeding 24.015 before we infer that the bulls have regained the advantage.  As in December Gold, that would creat a "soft" impulse leg on the hourly chart.

Around 11 p.m. Tuesday, the futures appeared to be rebounding from a 1328.00 Hidden Pivot midpoint that was mentioned numerous times in the chat room.  I flagged it myself late in the session, but so had at least two other chat-roomers -- Harry, and Gonegolfin' (aka Brian, a graduate of the last Hidden Pivot webinar).  Does this mean the correction is already over?  It's possible, although to be more confident about it I'd want to see the rally hit 1359.00, generating a "soft" impulse leg on the hourly chart.  (The peak to be exceeded at 1358.90 is not well developed, and that's why its breach would be less-than-decisively impulsive.)  At any rate, the fact that the selling has been discernibly reversed precisely at the midpoint pivot hints that bears will not find it so easy to beat down gold for a second consecutive day.  If they take another whack at it, though, a Hidden Pivot support at 1308.60 should be used as a minimum downside target.  It is the 'd' sibling of 1358.00 and will remain valid as long as 1347.40 (point 'C') has not been exceeded to the upside.

Let’s see if we understand yesterday’s earth-rumbling response to China’s 25 basis-point increase in a yuan lending rate. For starters, the dollar had its biggest one-day rally since August (which, to remind you, went nowhere; the dollar wafted slightly higher, then scuddled sideways for nearly a month before resuming its long-term bear market). Another effect of China’s decidedly un-momentous change, which supposedly was aimed at damping real estate speculation and inflation, was that bullion had its worst day in recent memory.  Comex Gold and Silver futures contracts were down nearly three percent, and there was little evidence at the bell that bullion’s inevitable rebound was immediately imminent. And, finally, we saw the heaviest selling of equity shares in more than two months, with the Dow Industrials down 226 points at their intraday lows. Does all of this mean anything?  In a word, no. China’s modest rate hike did not change any global paradigms, and gold and silver most assuredly are not anticipating a shift toward austerity by those drunken sailors of our economic lives, the central banks.  As for the dollar, there was talk that its big rally represented the flight of capital into the safe haven of cash.  But if  that is so, why did that other treacherously overrated “safe haven” – i.e., U.S. Treasury bonds – not come along for the ride?  December T-Bond futures were in fact up a whopping nine ticks, reflecting no appreciable surge in fear, nor any increase in the demand for “safety,” even when attached to a nominal yield.  Shouldn’t the Dollar Have Fallen? One is tempted to say the whole investment world got it wrong yesterday, and that the dollar should logically have fallen on news of an increase in Chinese lending rates.  That the greenback moved the “wrong” way is akin to

The suspicion grows that Monday night's selling is a cheap ploy to shake loose AAPL and IBM shares -- as well as to create surefire short-term profits in the mini-indexes once sellers (who have barely been heard from in six weeks) have spent themselves.

The futures would have to fall all the way to 127^23 to cast serious doubt on the intraday charts and the long-term bullish case, but for now it'll take only the breach of a midpoint support at 131^27 to imply the bears still rule the minor cycle.  A precise bounce there followed by a failure of the support would imply more downside over the near term to as low as 130^06.

The Dollar Index didn't get past either of the two important peaks flagged here yesterday, and, to make matters worse, DXY couldn't even muster the two additional ticks it would have taken to surpass the 77.65 look-to-the-left peak identified in the chart (see inset).  While it's still too early to write off this two-day-old rally, signs that the long-term downtrend will soon resume are too obvious to ignore.

The futures are getting dragged down by the carnage tonight in IBM and AAPL, but when was the last time hard selling in the latter was not a brazen shakedown induced by canny buyers?  In any event, the E-Mini S&P is down just 7 points, a relative intraday bargain, and one must infer that night-shift predators are piling on.  I'd turn bearish if the futures were to open even-to-slightly-higher, however, since that would indicate that the thieves doing the buying tonight had given up on making a big score.  If so, look out below!  Please note that the hourly chart would turn bearish on a print at 1155.00.