February 2011

The futures remain well on track for a pop above the 30.885 peak flagged here yesterday, but it's time to return our focus to a more ambitious target at 32.525 that was broached here earlier (adjusted upward by 0.005). Two things make this a high-odds bet: 1) the ease with which bulls blew past not only the 29.415 midpoint, but also some peaks made in the first half of January; and 2) the failure of last week's retracement to return to the midpoint to test support.

No change. A Hidden Pivot at 1379.80 has been our minimum upside target for so long that it should no longer be regarded as especially significant. The short-term trend is bullish but growing stale, and we should therefore require nothing less than a pop by Wednesday or so to 1394.80, eclipsing two external peaks on the hourly chart, before we get too enthused.  In the meantime, a close above the 1362.00 midpoint associated with the target would be an encouraging start.

Since there are some potentially important rally targets in sight, I'm planning to open a virtual trading room about 20 minutes before the NYSE opens on Tuesday.  This real-time guidance is for Rick's Picks subscribers only, and details that will allow you to access the session will be provided in the chat room around 9:05 a.m. EST.

Besides a major Hidden Pivot at 1356.00, there are two rally targets immediately above that come from lesser patterns.  They lie respectively at 1332.75 and 1339.25.  You can short the first with a stop-loss as tight as 1333.25; and the second, stop 1340.25. We are risking relative nickels and dimes so that if the futures don't quite make it to 1356.00, we'll have a horse in the race.

[In a guest commentary here yesterday, our friend Erich Simon used grocery prices from the good old days to buttress his conclusion that $2100 was the “right” price for an ounce of gold. The essay provoked a lively discussion, including the interesting note below from “Radek,” who’d rather own bullion shares than the actual metal. To find out why, read on.  RA] I think $2100 gold will just be a point in time when we can officially call the beginning of a “gold bubble” – i.e., where perceived value is greater than fundamental value. It will only go up from there for a few years (more or less), ahead of the pace of inflation while the herd gets in. It will go parabolic to heights that [another who posted to this forum] suggested. Then it will pop, and settle down, probably back to the $2100 that Mr. Simon suggested, and rise continuously at a more “steady” rate thereafter.  This is why I have decided not to purchase any bullion of any kind. Instead I am going to take advantage of the leverage that quality gold/silver stocks offer during the run-up; hopefully, sell at or near the top; wait a year; and then let everything crash and “settle down.” This will allow me to purchase more bullion due to the additional gains from leverage (as long as fees and taxes don’t make it financially unsound, as ‘Ricecake’ noted [above] ). Why would anyone in their right mind want to purchase bullion (never mind the losses due to fees, premiums, insurance, and potential future government interventions) unless they believe the “end game” is a total and utter collapse of the financial system that forces us to revert to local bartering with said bullion? I see bullion ownership as an “all or nothing”

The breach of a trendline that has contained price lows for more than four months suggests the futures are about to fall to structural support near 82, at least, if they can't lift themselves above the trendline in the days ahead.  It comes in today at 86.01.

Silver has already surpassed two peaks analogous to the ones I've flagged as obstacles for April Gold, but if the former is going to pull the latter higher, it'll need to do something impressive -- i.e., pop above the secondary peak at 30.885 recorded January 4 on the way down. More immediately, and less ambitiously, a close above a midpoint resistance at 30.255 would set the futures on course for 30.875, its 'D' sibling.

A Hidden Pivot at 1379.80 has been our minimum upside target for so long that it should no longer be regarded as especially significant. The short-term trend is bullish but growing stale, and we should therefore require nothing less than a pop by Wednesday or so to 1394.80, eclipsing two external peaks on the hourly chart, before we get too enthused.  In the meantime, a close above the 1362.00 midpoint associated with the target would be an encouraging start.

The way major rally targets for various stock indexes are lining up right now, it looks like the chartist's equivalent of the Mayan calendar.  I don't want to jinx these numbers by drumrolling them too loudly, but you should look for yourself to see how clear the signs are for an important top.  For trading purposes, I'm going to assume that they will all miss the mark -- but not by much!