GCG12

The high of yesterday's thrust narrowly failed by 1.20 to surpass the microscopic look-to-the-left peak at 1664.00 highlighted in the chart, telling us that mild caution is warranted.  That's because healthy rallies tend to "refresh" themselves by creating new impulse legs with each successive upthrust; and this one didn't. Most immediately, the futures were in a correction that could go as low as 1638.40 (A=1657.30 at 11:30 a.m. on the 15m chart), predicated on a breach of the midpoint support, 1644.80.  ______ UPDATE (10:46 a.m. EST): The bad guys are in charge today, intent on driving the futures down to at least 1622.80 (15m, A=1622.90 at 10:15 yesterday) now  that they've obliterated the support mentioned above.

As detailed in today's commentary, gold's modest rally yesterday was more encouraging than it may have looked, surpassing no fewer than three prior peaks on the intraday charts.  The key to the intermediate term, however, is the rally's ability to vault past yet another peak at 1681.70 before buyers take a serious breather.  All key price points are shown in the chart, the same one I've used in my commentary.  Night owls looking for a way to get long risking relatively little will need to drill down to the 10-minute chart, where at this very moment a very nice camo pattern has tripped an entry signal at 1644.50 (A=1641.50 at 6:40 p.m. EST, B=1645.20).

Much as we love to hate the dirtballs who maneuver stocks higher on low volume in the dead of night, gold seems to be benefiting from the same dynamic. Shortly before 2 a.m. EST, the March contract was doing what it had been unable to do during the regular session -- i.e., pushing above two important 'external' peaks made in December. It has already exceeded the first at 1643.70, and the second lies but a single point above the so-far high, 1644.80.   This is most encouraging, although, as noted here yesterday, it will be far moreso if the rally can continue past a third peak at 1681.70 before pausing for a retracement. Want to learn how we use Hidden Pivots and “camouflage” to reduce entry risk to relatively small change? Click here

Amidst a presumably purposeful interlude of tedium, we remain focused on unexciting “external” peak at 1645.80 as the number bulls must beat.  However, as noted here earlier, bullish confidence would take a much bigger leap if the impulsive leg that spears 1645.80 keeps going to 1681.80 before it runs out of steam.

The week of flatulence we just endured argues against going out on a limb with an exciting prediction, so let's stick with the unexciting "external" peak at 1645.80 as the number bulls will have to beat before they can crow.  Bullish confidence would take a much bigger leap, however, if the impulsive leg that spears 1645.80 keeps going to 1681.80 before it runs out of energy.

Stocks and bullion are moving in lockstep these days, and so my expectation of imminently higher share prices extends to gold as well. The March contract would become significantly more attractive if and when the rally surpasses the external peak at 1645.80 highlighted in the chart.  This seems like a good bet right now, given that yesterday's high somewhat exceeded a minor 'D' target at 1624.60 flagged here earlier, putting into play a 1646.20 target.

Minor rallies still seem to be struggling to reach unchallenging targets, but the short-term outlook is nonetheless bullish, since the futures spent most of yesterday consolidating above a minor midpoint resistance at 1614.20.  Its 'D' sibling is 1624.60, and so we'll use that number as a minimum upside objective for Thursday morning. However, if bulls break loose, use the 1646.20 target shown in the chart as a minimum objective. What I like about the pattern it's associated with is the sibling resemblance between segments k-A and B-C.

From a Hidden Pivot perspective the rally so far is unimpressive on the daily chart, and even on the 'hourly,' bulls seem to be struggling to create the kind of gung-go impulse legs that would signal the start of a major move.  Moreover, the 1445.70 downside target we've focused on will remain valid until such time as the 1643.70 point 'C' of the bearish pattern with which it is associated has been exceeded.  That's the bad news. However, as a practical matter, the rally has distorted the symmetry of the downtrending ABC (where A=1760.50) sufficiently to suggest that the pattern will not play out to its 1445.70 target. So how will we know whether the so-far moderate buying spree is capable of getting legs?  Let's stipulate that it impulse above the 1645.80 'external' peak on shown in the chart -- or better yet, above the more imposing one at 1665.20 recorded a day earlier.  In the meantime, camo traders have quite a few small peaks on the hourly chart created since 12/21 to 'discover' impulsive A-B rallies. Please keep in mind, though, that any entry signal thereof would need to be interpolated on a chart of lesser degree so that the initial theoretical risk would not exceed $60 per contract. In practice, this means the distance between C and X of the pattern used to make entry be no more than 50 cents.

With trading in 2012 having begun, the futures are up nearly $14.  However, this hasn't recouped losses sustained when they dove late in Friday's session, let alone created a bullish impulse leg on the hourly chart. I am wary of a bull trap under the circumstances, but putting aside my gut feeling, the surge will need to go a further $15, surpassing a small peak at 1594.40 recorded last Wednesday, to demonstrate buyers' resolve.  The bigger picture would still be bearish, however, since the rally from Thursday's low at 1523.90 is taking place in the wake of a breach of an important midpoint support at 1544.70 associated with a correction target (broached here earlier) at 1445.70.  Camouflageurs working the night shift should take note of the fact that a b-c pullback from anywhere between 1594.50 and 1601.50 could provide excellent cover for initiating a long position with relatively little stress.