Our real-time Q&A session yesterday covered quite a bit of ground, from the XAU to cotton futures, to LEAPS and Kansas July wheat, to Korean Pohang Iron and Steel (aka Posco). I was out of the office most of the morning and therefore unable to monitor the progress of the E-Mini S&P, whose high at 1191.75 fulfilled the forecast to the exact tick.  Unfortunately it did so just after the day-session ended, making it a short for night owls only. Hidden pivot targets seem to work as accurately after-hours as during the regular session, but they must be traded more cautiously, since there is less liquidity to get one out of trouble. I’m more inclined to trade at hidden-pivot supports and resistances when they are touched at least two hours before the final bell. However, because I’m often up till 4 a.m. Eastern Time, I may be able to offer night-session DAX analysis for all of you insomniacs.

We’ve also been looking recently at the E-mini Russell 2000, a vehicle which evidently is attracting its share of former S&P traders. Preliminary evidence suggests that the Russell dances fairly precisely to the rhythm of hidden pivots, but perhaps not quite so precisely as the S&Ps. Yesterday, for instance, my forecast called for a strong rally in the Russell 2000 to 628.30, and I suggested shorting there with a relatively wide stop at 629.10. The actual high was 629.90, which, although reasonably close, diverged from the dead-center bullseye achieved by the S&P target. What could account for the discrepancy? The simplest answer is that the Russell has been stronger than most other indexes lately. In fact, it is the only index for which we track and trade a mini contract that has already exceeded the market-wide highs achieved on January 18. While the Naz, the S&Ps and the Dow are still trading well below those highs even after rallying for the last three days, the mini-Russell surpassed it and closed above it yesterday, suggesting the bull has energy to spare.

Gold’s Weakness Not Over

Not so gold, which has been straining against gravity since mid-November. The XAU may have eked out a small gain yesterday, but as I noted in our real-time chat, the rally doesn’t look like it will get very far.  Settlement was at 91.68, and while moderate buoyancy could persist for a few days until the index wafts up to a hidden-pivot resistance at 92.70, the 89.05 downside target that I advertised a while back still looks quite compelling. The target is shown in the chart immediately below. This chart updates one that I reproduced here about a week ago. Tuesday’s rally may have encouraged some of you to think bullion is on the comeback trail, but as you can see for yourself, it did little to ameliorate the striking visual impression of a bear cycle that has yet to run its course.  

The most bullish scenario I could envision over the next week or so would be for the XAU to hang out near 92.70 for the 3-4 days it would take to base for a prolonged thrust. But more likely is that it will rise to kiss 92.70, then begin a descent to the more promising launching pad at 89.05. We can remain open-minded about the imminent prospect of a bullish turnaround in the metals complex, but I will defer to my technical indicators before all else. My outlook is for further consolidation in the sector over the next three weeks, then a rally that, sometime in March, would test the weight of late December’s highs below $450.