Tuesday, April 16, 2013

The low of yesterday's selloff came within $6 of an exact 50% retracement of the 2008-11 bull market. Under the circumstances, we'll be looking aggressively for 'camouflage' opportunities to get long.  Night owls should check out the chart accompanying today's tout for June Gold, since it highlights a series of 'external' peaks that could prove useful for this task. Keep in mind that tradable micro-patterns used for camo should implicitly promise to keep theoretical entry risk down to no more than 3-4 ticks per contract.

As noted in today's commentary, 1341 is the midway point of the bull surge that carried gold from $732 to $1949 between October 2008 and September 2011. At Monday's intraday low of 1335.10, the futures had corrected the move by almost precisely 50%. This implies that 'camo' traders should position from the long side now.  Night owls take note: You will see in the 15-minute chart that accompanies this tout that there are numerous closely spaced 'external' peaks that can be leveraged for this purpose.

Bullion prices adjusted violently to a new reality yesterday. Now, if we can only figure out what that reality is. From a deflationist’s point of view, it could have been landfall for the perfect storm we’d all been expecting.  To wit, some important news stories roiling the waters in recent days: 1) China’s economy is weakening, putting enormous pressure on commodities and resource-based currencies; 2) U.S. output, employment and income appear to be falling as well; 3) Draghi evidently thinks that European countries in need of financial rescue should surrender their gold, for starters; 4) military spending fell globally in 2012 for the first time since 1998; and 5) Japan’s last-ditch attempt to inflate seems more likely to end in bankruptcy than to pump up anything of economic value. Concerning that last item – op-ed speculation at this point, we’ll admit – bullion markets gave BOJ’s hail Mary pass a big thumbs-down yesterday.  Our take is that although making the yen nearly free to carry-traders a decade ago helped inflate financial assets around the world, it won’t work this time, even in Japan.  With respect to the global carry trade, who needs to borrow yen when Big Players can borrow all the dollars they want – fungible in ways that the yen is not -- for almost nothing?  All Japan will have succeeded in doing is driving its savers elsewhere – into U.S. Treasurys, for one, where they can hope to survive a global banking meltdown for perhaps 90 minutes longer than the fools who have put their faith and savings in the euro. Next Stop $1188 From a technical standpoint, we ran out of bearish targets yesterday when June Gold pulped a $1414 Hidden Pivot support in the early going.  The intraday low was $1348, which as it turns

A longstanding bear target at 13.15 spared us a heap of pain as GDXJ fell from the high teens, but we couldn't pass up bottom-fishing yesterday near some potentially important Hidden Pivot targets.  In the actual event, traders reported coming away with a loss of about $60 after being stopped out on 400 shares bought for around 12.57.  The subsequent breach of the 12.59 Hidden Pivot that informed our bid suggests that this vehicle could now fall to as low as 9.57 before it finds a bear market bottom. We've seen the pattern shown in the chart work precisely many times before.

The power and persistence of yesterday's selloff made a short at any 'x' a winner, since there were few rallies to stop out bears at point 'C' highs. This could be the start of something big, but getting aboard will require paying diligent attention to intraday price action. Look for me in the chat room if you're interested.  While it's disappointing that a 1594.25 target I'd featured here for a while missed the recent top by a crucial 1.25 points, stranding short offers at that price, if a bear market is indeed under way there will be other opportunities to get short -- and to make some money trading both sides of the market.

Although I'd emphasized the importance of a longstanding rally target at 14969 here yesterday, we should allow for the possibility that it will not be reached and that the recent high at 14887 could turn out to be the elusive Mother of All Tops. Odds will naturally remain in bulls' favor for now simply because the bull market has been running for more than four years. However, because Monday's downdraft created a bearish impulse leg on the hourly chart, we can at least speculate that 'The' top is in, even if it is only 'a' top at this point. We'll have a better idea of the selloff's power once we've seen how the follow-through leg plays out (see inset).