August 2012

On Sunday night the gold futures confirmed a new and elegant pattern whose midpoint and 'D' target make the 1632-1653 range a target-rich environment.  The new pivots are at 1632.40 ('P') and 1643.20 ('D'), and we refer you to the August 9 gold tout for the other three, lest we overcrowd this one with bolded green digits.  Both of these new levels are somewhat below important prior highs, as the attached split-screen chart shows, which means that shorting either of them would be an act of front-running, a trading tactic that can be worth the risk in the gold market.  In fact, looking at the five pivots under consideration, our two new ones are the only ones among the five which look like reasonable shorting candidates.  Many gold-market participants are watching the important prior high of 1646.40.  A breach of that level might bring in a good deal of bullish money that has been on the sidelines for a while.  (Posted by Doug “harry” McLagan)  _______ UPDATE (1:50 p.m.):  Our 'C' point was broken shortly after the COMEX pit opened this morning, cancelling the pattern and its targets.  A vigorous afternoon selloff has retraced most of the impulse wave but has not reached the key prior lows from 1608.10 down to 1605.90.

Index futures were suspiciously subdued early Monday morning, down just enough to give away the bullish plans of the predators doing the accumulating.  Gold futures, on the other hand, were up small, working (and I do mean working) on a modest bullish target furnished a while back in the touts section.

The 1409.00 target shown, introduced here a week ago, remains valid and is still a logical place to attempt shorting this sometimes sludgepot.  Camouflage is the preferred way to go as always, and I'd suggest using the 5-minute chart if and when the rally reaches 1407.50. Easier but somewhat clumsier would be to initiate the short at 1409.00 with a 1410.25 stop-loss (as originally suggested).  I haven't exactly drum-rolled this target, but it has been long enough in coming that we should assume word of it has gotten around. That's why I am suggesting a 'camo' entry strategy unless you're feeling lazy.  If the trade survives till the final bell and is acknowledged in the chat room, I'll establish a tracking position for your further guidance. _______ UPDATE: My 1409.00 target -- stupidly, tediously, incorrigibly slow in coming -- hit a near-dead-center bullseye, since the futures have dropped to a so-far low of 1402.00 after topping this morning at 1409.50.  Cover half at current levels (around 1404.00) and let it ride with a 1410.00 stop-loss.  If we get more of a pullback, you know the drill: Swing for the fences, since, although it is extremely unlikely, there's always the chance we've caught a major top.  The trick -- and fun of it it -- is being able to make money when we are wrong, as we have done on perhaps 9 out of 10 of these 'pick the Mother of All Bear Rally Tops' trades. You can learn how to do this stuff yourself — and more easily than you might imagine.  Click here for a free trial subscription.

Crude oil is retreating from an area of significant resistance and might have made an important high on Wednesday.  That high of 94.72 was only ten cents above the midpoint of a large pattern which began at the major June 28 low, as shown on the attached chart.  Alternate 'A' points for the pattern yield 'D' targets of 95.49 and 96.04, not far above this week's high, so if the oil price heads back up above that level, it might not get very far.  If it does have the strength to overcome those two pivots, it will be aiming for the 'D' target of the large pattern, at 102.39.  (Posted by Doug “harry” McLagan)

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