November 2010

We caught a small but theoretically profitable upthrust yesterday using the 'd' target of an abcd correction that unfolded during a pre-opening briefing.  Price  action was especially flat -- more like a slither than a trend -- but we can only infer it is a consolidation for the next all-but-inevitable QE2 push higher. A well-discussed rally target at 1233.75 still obtains, but I am reluctant as yet to tout another at 1259.75 that implies a rally of much steeper pitch  (although I'd consider it a done deal if the futures were to gap above 1226.00 on the opening)  That is the point 'X' entry trigger of the pattern that projects to 1269.75.)   The provenance of both targets is shown in the accompanying hourly chart.

I'd suggested keeping an eye on a midpoint Hidden Pivot resistance at 27.235, but the futures turned it into chop suey yesterday in a trice.  That means getting to the 'D' target at 28.590 (adjusted downward by a tick, by the way) associated with that number shouldn't pose much of a problem for bulls.  Traders, as well as long-term bulls looking for a logical place to adjust,  should gear for a pullback from 28.400, or from 28.590 if the lower number is exceeded by more than two cents.  How much of a pullback?  That's hard to say, although the magical number $30 could be just a day or two away if 28.590 fails to slow the buying rampage for more than an hour or two.

[ In today’s guest commentary, Rick’s Picks forum regular Doug Graham sounds a note of deep despair over the political economy.  There are too many incentives, he says, for our corrupt and deeply dysfunctional system to stay just the way it is.  And even if we possessed the fortitude and resolve to put things back on track, the looming inflation of the dollar to the point of worthlessness will render any such efforts moot. RA ] Pretty weird having front row seats to the destruction of the dollar, but here we are.  The leaders keep claiming they have a strong-dollar policy, yet the price of nearly everything, excepting housing and perpetually deflating technology, is now rising.  Every metal.  Grains?  Fuggeddaboutit. Energy?  Well natgas kind of threw us a curve, but even it is double its price from ten years ago.  We can argue the deflation debate forever, but the fact is your dollar buys you less of nearly every single commodity than it did in the Nineties.  Some, as much as 80 percent less.  You could not say this in the Eighties or the Nineties. At the same time we have a government which evidently can do nothing but stimulate inflation, insisting on growing.  It is widely stated that governments produce nothing.   This is not entirely true.  Other than dollars, they also can produce national security and they do provide some services such as moving mail around.  In general, however, they do produce nothing.  If they were a part of the human anatomy, they are more like the colon (my apologies to the colon, an effective and efficient organ)  than the quadricep: vital for the whole to function, but not all that pleasant.   And yet, the only significant job-growth sector of the economy in the last two years has been government.

With gold making all-time highs on Friday and nearly so in the early hours of today's session, the patterns are essentially all bullish, and the targets are numerous.  A robust pattern on the monthly chart of the December 2010 contract gives us a "D" target at 1400.8, and the futures have come within three dollars of that target three times since Friday morning.  This is quite close, given that the "C" point is more than $350 lower.  Gold's explosive rally from the low that followed Wednesday's FOMC announcement launched a new intraday pattern whose midpoint is 1406.3, which nearly coincides with another pivot first touted on November 1.  This new pattern is depicted in the attachment.  Should its "D" target of 1440.8 be reached, gold would be very near completing its largest active pattern, the one that begins in 2001 and whose pullback came in 2008.  The "D" target for that pattern is around $1460, varying only slightly according to the data set used.  What's a gold trader to do?  We would emphasize the long side, but don't rule out a deeper decline from the 1400.8 pivot, which has already been "hit."  (Posted by Doug McLagan)

Natural gas might have made an important low recently.  After its major high in mid-2008, the price of the clean-burning fuel declined by more than 80% over a fifteen-month period.  A large bounce (in percentage terms) gave way to another downtrend which has lasted throughout 2010.  Recent price action raises the possibility that natural gas has made an important secondary low and that it might be ready to join the bullish party that most other commodities have been enjoying.  The futures are trading just below the midpoint (at 4.008) of a pattern which began with a powerful short-covering rally that peaked a week ago.  If the sibling "D" target of 4.274 is reached, additional prior highs will be taken out, and the recent low of $3.50 will begin to look very important.  Traders should watch for smaller patterns to provide opportunities to get long.  The "D" target might present a chance for shorting with a tight stop (probably no higher than 4.281), but if the futures get that high, traders should take seriously the odds that a najor new uptrend has begun.  (Posted by Doug McLagan)

Gold is trading a bit lower than it was when I published Monday's tout earlier this evening, and it may be due to the purely technical rally unfolding in the dollar at the moment. Check out the analysis for DXY if you want to get a better handle on the situation.

So far, Sunday night's five-point selloff in the E-Mini S&P looks almost as unconvincing as the one in Gold.  The futures are at the low end of an extremely tedious, seven-point range they 've been plying since early Friday morning.  The result is a sine-wave-of-a-snoozefest that has generated no impulse legs worth noting even on the lowly five-minute chart. My gut feeling is that the futures will need to hack and wheeze for another 2-3 days before they attempt to replicate the hysterical steepness of Thursday's QEII thrust.

In this short audio segment from The Korelin Report radio show, Rick discusses the election results and the potential effects of the recently announced $600 billion quantitative easing. Click here to listen.

The Dollar Index looks poised Sunday night to push moderately higher, to a Hidden Pivot resistance at 77.13 that was visible on all of the intraday charts.  So that we don't mistake a fake rally for the real McCoy, let's stipulate that DXY must shred two more peaks -- respectively, at 76.98 and 77.42 -- with an unbroken rally before we get excited.  Both can be found on the accompanying chart.