Thursday, February 16, 2012

The U.S. Dollar Index is acting like it has made a potentially important low as the March futures approach an 80.250 target.  The target derives from a classic pattern, and if it is reached, a much larger and equally classic pattern will have been activated by a print at its 'X' entry trigger.  The larger pattern projects to a midpoint of 81.825 and a 'D' target of 85.220.  If the 80.250 target is surpassed, the next order of business will be to take out important prior highs at 80.505 and 80.635, which would intensify the bullish picture.  Dollar skeptics can risk a small $30 (plus commissions) by shorting the 80.250 target with a sell order at 80.235 and a stop at 80.265.  Bulls with futures accounts will have to find a camouflaged opportunity to get long, but bulls with access to the stock market can trade the large-scale pattern using the ETF with symbol UUP.  To do this, get yourself stopped into a long position at 22.29, and if filled, use a stop-loss at 21.83, just below the "C" point of the pattern.  The midpoint is at 22.73 and the "D" target is 23.62.  (Posted by Doug "harry" McLagan)  _______ UPDATE (1:25 p.m. EST): Despite our general bullishness on the dollar, we decided to specify a short-side trade for skeptics, based on the gorgeous shorter-term pattern and its "D" target.  Traders taking the trade were filled on the short-sale and not stopped out.  The decline in the futures from the 80.240 high has thus far reached a low of 79.520, worth $715 per contract from the recommended 80.235 short-sale.  If we add about $10 for commissions and fees to the $30 risk, we come out with a maximum eighteen-bagger on the trade, and it might not be over yet.  Those

The active patterns on the gold charts are predominantly bullish, but there are good reasons for caution at the moment.  The larger reason is that the historic move from $681 to $1923 during 2008-11 has retraced only about 32%, which seems shallow.  The corresponding decline in price has been less than 21% -- much less than the 34% price decline of 2008.  If the 1526.20 low (basis April) is going to hold, then the chances are that the price consolidation below the all-time high is likely to take significantly more than the five months that have elapsed so far.  The more immediate reason for caution is the lack of a meaningful pullback since the 1526.20 low.  We have not yet seen a 25% retracement of the rally up to 1765.90, a percentage at which we might begin to regard a pullback as a BC leg, although 30% seems even better. While we're thinking about retracement percentages, let's not forget the 38.2% Fibonacci value.  That would bring us to 1674.30 vis-à-vis the current rally.  To retrace the 2008-11 move by that much, gold would have to trade at about $1449 an ounce.  Traders should be aware of a 1763.20 midpoint and its 1820.10 sibling 'D' target, as well as bearish pivots at 1714.70 (P) and 1690.10 (D).  The latter midpoint is not well hidden in relation to prior lows, but the 1690.10 target is, so if we see an accurate reversal at that level, we'll know why, though most other traders won't.  (Posted by Doug "harry" McLagan)

Price action was pretty turgid Wednesday night, although sellers could turn things ugly with one nasty little shove in the E-Mini S&Ps.  Gold was holding its own but also under threat from selling forces that presumably are short-term.

It was all downhill yesterday, DaBoyz having wrung as much fear and panic from bears as they could before the opening bell. I doubt that bears will have much to celebrate in the days ahead, however, since the selloff, ostensibly the worst of 2012, has actually been pretty feeble so far.  Notice how the futures had to be dragged lower, kicking and screaming, to breach even a single important low on the chart. And although a second at 1333.75 looks ready to give way, even if it does there will have been too much hesitation about it.  We should be ready to put our skepticism aside, however, if a downdraft overnight or Thursday morning pushes aside external lows #3 and #4 (see inset).  In any case, as we went to press there were no compelling correction targets where camouflageurs might look to bottom-fish.  If you're keen on finding one, though, I'll suggest doing so on the 20-minute chart or lower.

[Erich Simon has contributed some appropriately grim essays in the past. In the commentary below, he surveys the economic landscape as America’s descent into bankruptcy picks up speed. There will be no escaping the ravages of Depression, he says, even for those who have piled up gold against events that may lie beyond imagining. RA] Beginning in 1995, the Federal Reserve financed the arrival of financial Star Wars, leveraging fear over the Y2K computer bug. The spending spree that ensued bankrupted the last greatest nation on earth. To fuel it, global currencies were juggled, gold was suppressed (until 2004) and equity markets were pumped with hot air. The euro, a fallback currency, was invented in case of a dollar rout. With debt force-fed into economies of the East and West, the 30-year Treasury Bond was retired in 2001 to circumvent a possible collapse of auction demand. The job of the Fed is to disburse “wealth”—i.e., scarce national resources denominated in indigenous currency. Currency gives physical form to the work, and resultant savings, to construct a national means of production. The Fed is charged with maintaining the status quo, a quality of life that has in fact been trending downward for both rich and poor since the supposedly mild recession of 1991. Not long thereafter, free markets gave way to manipulated markets, which today are giving way to de facto markets. Wealth was ripped out of the pockets of savers, retirees and everyone else. And then it was spent. Military contractors -- along with the trinity of Wall Street Greed, Washington Corruption and Corporate Machiavellianism -- were vastly enriched by The Great Campaign to realign global-resource scarcity and human draw. This time, supposedly, it was going to be different. The rising tide of prosperity would encompass the whole world. In fact,