Friday, August 10, 2012

Yesterday's gold tout remains fully intact after a day of trading within a limited range.  Until either the high of 1621.30 or the low of 1605.90 is broken, we will be watching and waiting, with chart patterns favoring the upside. Recently many traders were impressed by a bullish breakout from a triangle formation, but since then gold has continued to make lower highs and higher lows.  This probably signals an accumulation of potential energy which will be released soon, perhaps at the end of gold's seasonal summer doldrums. The attached chart displays many of the prior highs and lows that are exposed to an impulsive burst. A breakdown would send the market toward its final low of this long-running correction.  An upward breakout would presumably also be very energetic, but given the dimensions of the rally from 2008 to 2011 and the shallow 21% correction since then, we should be prepared for it to fail to make new all-time highs and to be followed by a significant corrective decline.  (Posted by Doug “harry” McLagan)

As counterpoint to the bullish take on T-Bonds in today's guest commentary, I have pointed out in the touts section of Rick's Picks that September T-Bonds are stealing up on two very important supports.  If the lower one is breached by even a single tick, it would be the most bearish technical event we've seen in this vehicle in a long while.  Check out today's T-bond tout and the accompanying chart for precise details.  (Can't access it because you don't subscribe?  Click here for a free trial subscription to Rick's Picks.)

Despite the strong bounce from yesterday's heavily oversold lows, the downthrust did considerable technical damage.  For one, it breached a moderately important Hidden Pivot support at 148^06 that I'd flagged here earlier; and for two, it took out some important lows from June, although not the key low at 146^28 recorded on June 10 or an even more important one at 146^02 from May 22 (see inset).  The higher of those two numbers is  likely to act like a magnet and should be regarded as a minimum downside objective for the near term.  If the lower (146^02) is exceeded by even a single tick, however,  it would create the most powerful bearish impulse leg seen in this vehicle years, signaling a possible end to the secular bull.  Keep in mind that the downward breach of those two lows would need to come via an unpaused thrust to have the most bearish implications that we might draw.  Alternatively, if the futures rally to exceed  the August 6 high at 150^11 without having penetrated 146^02, they'd be signaling a strong resumption of the long-term bull market. You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

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[We’ve featured the sage thoughts of our friend Doug Behnfield here many times.  In the report to his clients below, the Boulder-based financial advisor reaffirms his strong conviction that Treasury bonds are still the place to be – not for yield, which stinks, but for potentially significant capital gains if interest rates should trend lower as Doug expects. RA] As we begin the second half of the year it is remarkable how unclear the outlook is for the economy, politics and the financial markets worldwide: *  The economy seems to be falling off the table globally, but most pundits remain confident that the central bankers (like the Fed and the European Central Bank) can somehow pull a rabbit out of the hat. *  Obama and Romney are neck and neck in the polls. Chief Justice Roberts seems to have had some kind of stroke when presented with the latest (and perhaps last) congressional attempt at entitlement expansion. And the fiscal cliff is now moments away with no inkling of statesmanship poking its head up in Washington. *  The financial markets have been all over the place so far this year. The S&P 500 peaked out in April after a spectacular 1st quarter and has been choppy, dropping 3.3% in the 2nd quarter. At about the same time that stocks peaked, bond yields and non-food commodities started tanking. Amazingly, analysts are still predicting double-digit earnings growth for the 2nd half of this year. Fed Is ‘Out of Rabbits’ With all this in mind, our job is to be focused on achieving good investment returns while trying our best to avoid risk. So here is my attempt to provide clarity on how these issues translate to investment strategy and asset allocation going forward. The central bankers really do not have any more