Friday, December 4, 2009

I've furnished some nuanced charts to help you determine what gold is really up to today. The Dollar Index looked moderately bullish early Friday morning, but if gold were to ignore it, that would be most encouraging.

Thursday night's pullback looked corrective, since it follows the breach of a look-to-the-left peak created Tuesday on the way down. Please note that the dollar would create a robust new impulse leg if it can get past a second look-to-the-lefter at 75.02. If it does, it would turn the visually obvious peak at 75.09 made the same day into a dead duck.

I have a hankering to take something short over the weekend, but if you agree, you'll do better picking your own spot on-the-fly rather than using mine based on a Thursday-night guesstimate. Nevertheless,  if the Diamonds rally on the opening without having exceeded yesterday's 103.59 low, you should take your shot at 104.86, a midpoint pivot. So that you can adjust if opening-bell weakness obtains, I have included a chart that shows the relevant pattern. ______ UPDATE (104.17): A head-fake on the opening to 105.27 was shortable, although the modest selloff that followed over the next few days would not have produced much in the way of gains. 

The pullback from yesterday's final day-session peak was bearishly impulsive, as you can see in the hourly chart, since it exceeded the required internal and external prior lows. This has negative implications for the near-term, but they would be negated by a snap-back rally today that exceeds 1222.40. That would give us "dueling" impulse legs and a technical picture implying that bulls are still in charge.  A less convincing show of confidence would come if the rally in progress early Friday morning fails to clear any peaks at all, then falls to a midpoint support and reverses.  These possibilities are sketched out in the accompanying chart and should be monitored closely intraday. My gut feeling is that the futures will need to spend more time in purgatory before they take on the 1237.90 pivot noted here earlier.  A bearish outlook for the near-term would become more compelling if the futures were to create a southbound impulse leg on the hourly chart for a second day in a row.

I mentioned some VERY important rally targets in the chat room the other day, but here they are officially:  For the December contract, the key Hidden Pivots lie at 1138.50 and 1140.00;  for the March contract, the respective pivots are at 1127.25 and 1129.50.  What is interesting about these sets of numbers is that they do not come from "alternative" points "A"; rather, they are closely coincident targets calculated from patterns of two different magnitudes.  As such, we should expect each target range to exhibit double stopping power. I have included a  weekly chart that shows there were no tricks in deriving the targets. Both come from impulse legs that meet strict criteria, and the only thing that mars their perfection is the lack of a one-off A in early March to begin the larger pattern. There is little doubt in my mind that these pivots have the potential to end the bear rally begun on March 9, so the question is whether they will be reached at all.  Usually, we categorize an important rally target as unachieved as soon as a near-miss gives way to a bearish impulse leg of hourly-chart degree.  In this case, that would imply a print at 1053.50 following a leg down that is unpaused after exceeding 1073.50. We needn't wait so long for confirmation, though, since subtler signs of a trend failure are already developing on the lesser intraday charts.  I suggest using today to gather further evidence, which will accumulate as corrective patterns either succeed or fail to reach their 'D' targets. The December contract has come within 22 points of the target, but my hunch is that it is capable of getting closer to it -- i.e., 1122.00 or higher -- before failing.

Click here  for a very scary read from former Wall Street Underground-er Nick Guarino. He says the falllout from the collapse of Dubai World has barely begun and that the final damages will vastly exceed the $60 billion currently estimated, sinking the global economy. This piece is not for the squeamish nor for gold bulls, who are not going to like its conclusions.  When the "Dubai-has-been-saved" delusion ends and the world's money managers panic, Guarino foresees a huge rally in Treasurys and the dollar, along with a corresponding collapse in gold and oil prices. The latter, he says, will fall to $5. Since we've already had a preview of how the markets will react when Dubai-induced panic hits, the only important question remaining to be answered  is whether you think Dubai's problems have been fully resolved.

Touts will be out later tonight, when it may be possible to assess February Gold's behavior relative to the Hidden Pivot support discussed in Friday's commentary.  I will also address the inability of the E-Mini S&P  to summon the gumption yesterday for anything more than a cheap opening-bar squeeze.

Our immediate outlook for gold turned cautious yesterday when the February Comex contract pulled back sharply from within 40 cents of a Hidden Pivot target at 1227.90. The target was reiterated in an analysis that went out Wednesday night, as follows: “Bulls should have been heartened to see gold so resilient on a day when the dollar stood firm. The payoff appears to be coming this evening, with a bullish thrust by the February futures above the day’s range. I still like 1227.90 as a minimum upside target, or perhaps 1230.00 if any higher, but we should turn cautious when that range is reached. It seems likely to show some stopping power, but if none is discernible that would sharpen the focus on the 1337.00 target given here earlier.”   Subscribers had been alerted to the possibility of a tradable top at 1227.90  before the futures first poked above 1200.  With yesterday’s thrust to within a hair of our number, we are now focused on an unachieved target of larger degree at 1337 (as noted above).  That is our minimum upside objective for the next 10-14 days, but as is our custom, we won’t consider it a done deal until certain technical benchmarks are met. The first would be a successful test of support at exactly 1198.80, a little less than $3 beneath the correction low as of 7:30 p.m. EST Thursday. That number is a Hidden Pivot, and it is sufficiently compelling to imply that it will provide a tradable bounce if and when the February Comex contract touches it. If there is no bounce, however, it would be akin to the groundhog seeing his shadow : six more weeks of winter, or something like it, for this correction in gold.  A Number to Watch: 1198.80  In recent months, gold’s corrections