“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Saturday, January 25, 2014

Weekly Gold Chart and Comments

Gold posted a nice close to finish out the week although the mining shares were once again refusing to go along with the strong move over at the Comex. That always give me a reason for concern as one likes to see both the shares and the metal moving higher in sync to reinforce the bullish cause.

I wanted to start off with a weekly chart to provide a bit of a longer term perspective before moving in for a closer look at the daily and even shorter time frame charts.

On the weekly chart, using the Directional Movement Indicator (one of my favorites as it is an old, but reliable friend), you can see that the Negative Directional Movement Indicator (  RED LINE ) remains above the Positive Directional Movement Indicator ( BLUE LINE ) as it has been since late in 2012. In other words, the BEARS REMAIN IN CONTROL of the gold market despite gold's heroic performance this past week.



The ADX, the trend indicating line, is moving lower showing that the defined downtrend has been interrupted after it showed a slight rise forming on the failure to extend past $1,350 in late October 2013. So how do we interpret this?

 On this intermediate time frame, no trend currently exists with the bears dominating. We would need to see the directional indicator lines cross and reverse dominance to realize a shift of control in favor of the bulls. That has clearly not occurred on this time frame.

Also notice that the 30 week moving average has been a good defining parameter for the metal at this time frame. It has served as support when the market was moving higher as can be seen from looking over to the left hand side of the chart. Retracements in price were held at this level as buying emerged.

During the sideways phase that lasted for all of 2012, the weekly moving average was not of much use ( moving averages NEVER ARE during sideways or consolidation phases ) but once price started trending lower in early 2013, it did serve to cap all rallies on the upside as can be seen occurring between July 2013 and the end of the year. Currently price can be seen approaching this level from down below. Also note that the moving average has stopped heading lower and is turning up. That is a friendly sign to the bull's cause but as noted above, the DMI is not yet indicating a bullish victory on this time frame.

Let's pull in to a bit closer term look by using the daily chart/.



This presents quite a different picture. Notice that the Positive Directional Indicator ( BLUE LINE ) is decidedly ABOVE the Negative Directional Indicator ( RED LINE ). Translation - Bulls have seized control of the market on the shorter time frame.

If you look a little closer you can see that the ADX line has stopped moving lower and is actually turning higher as the price moves higher. That is a good sign for the bulls as it indicates that they have the potential to turn this into an upside trending move if they can continue to follow through on the upside buying. The ADX remains below 25 however so I would not yet call the market as being in an uptrend. Some technicians like to see the ADX above 30 before stating a trend has formed but I am a bit more aggressive and will look at the 25 level. By the way, this is more of an art form than an exact science so do not write this down in stone.

Notice that this same 30 period moving average has been a decent level to watch as it provides overhead resistance ( see the left side of the chart ) for price rallies. Price has popped above it and is sitting right at a band of overhead chart resistance. It pushed past the top of the band on Friday but fell back.

From a fundamental perspective, if these emerging market credit concerns greet the market Sunday evening and Monday morning, one would expect gold to punch through and move higher. ( Remember the side note I stated repeatedly not too long ago and that gold needed something to dispel CONFIDENCE to kick it higher). That is what happened this week with the currency/credit issues in emerging markets.

Here is how I am looking at this right now - traders with a shorter time frame perspective should go with the flow on the daily but keep in their mind that the intermediate term chart shows a market with a BEARISH pattern. That means rallies are going to be viewed as SELLING opportunities until the weekly chart becomes positive. At that time, the mentality should change and dips should be bought.

Let the longer term charts guide your "big picture" view when you trade. If you are nimble and can move into and out of the market quickly, you can trader on much shorter time frame intervals. Just understand what you are doing and don't get caught up in all the usual hype that will start back up once again now that the metal has moved higher and improved the short term charts. STAY OBJECTIVE and ignore the voices. Let the charts guide your decisions.


37 comments:

  1. Oops. Now the Financial Times has gone, "Conspiracy theorist" as well. Learn from Bubba. Demand physical! http://www.ft.com/cms/s/1586a7fe-84d6-11e3-a793-00144feab7de,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F1586a7fe-84d6-11e3-a793-00144feab7de.html%3Fsiteedition%3Duk&siteedition=uk&_i_referer=http%3A%2F%2Fwww.zerohedge.com%2Fnews%2F2014-01-25%2Fft-goes-there-demand-physical-gold-one-day-paper-price-manipulation-will-end-catastr#axzz2rQUJiblf

    ReplyDelete
  2. Hey Dan,
    Have you stopped contributing to KWN, I always enjoyed your weekly wrap, even if I have to confess I used to listen whilst doing the weekly ironing!

    Your latest blog is the first positive one on gold for a while, I sense, even you, the hard bitten trader is starting to see that gold might have something going on here.

    ReplyDelete
    Replies
    1. lids;

      I mentioned in another post that I am unclear as to when or if the Metals Wrap will start back up over there. I have not been given a definitive time statement on that.

      Hey - who does ironing any more? I did not realize that they still made those things! Just kidding.

      Yes, I try to look at the charts and stay objective. When they improve I note that. That is happening on the shorter term time frame. Well see if this emerging market thing has any legs to it.

      Dan

      Delete
    2. I was just about to ask the same question! I listened every week, because what you said made sense (and $). I figured that you strayed too far from the up up up crowd. Thanks for being intellectually honest.

      Delete
    3. I hope that Dan doesn't get the Jim Rickards treatment from KWN. If so, Dan could easily find his own internet venue. Truth is not easily suppressed in this age of the Internet.

      Delete
    4. William,

      Could you please elaborate on the treatment to Rickards? I was curious why he hasn't appeared there in a long time.

      Delete
    5. Mr Rickards, on his Twitter feed a while back, was asked by a follower why he was no longer appearing on KWN. Rickards was rather oblique, but indicated that he was available any time Eric King wanted to interview him. I assumed that Rickards somehow and some way had gotten under Mr King's collar.

      Delete
    6. Thanks for the explanation, William.

      Delete
  3. Dan,

    You really need to write that book on trading commodities, man. I've read several excellent authors on overall economy subjects and monetary policies, but there seems to be almost nobody worthwhile on trading (Howard Marks being somewhat of an exception). I mean there are thousand of books on how to get rich in 15 days doing day trading 20 minutes a day, but nothing of substance.
    You've expressed so many great ideas and concepts on this site, KWN and JS blog that compiling them would be over 50% of the job done. I'd for one buy a copy of it for sure (unless it's like $200 or something).

    ReplyDelete
    Replies
    1. "How to get rich in 15 days doing day trading 20 minutes a day"

      If this is the title of the book, leave it on the shelves and forget about it :)

      Delete
    2. Abraxas;

      Thanks my friend. I am seriously giving some consideration to doing so. My main problem is time in which to do it. Maybe I could compile some stuff from my past writings and market it for $199.95 ( see how I got the price down under $200 for ya?).

      If you act now however, I will include a second book for free. Yes, you heard that correctly, for free! Only send $4.95 for shipping and handling!

      Delete
    3. Sounds like I've got myself a bargain!!! Can you throw in a trading meditation yoga mat? The money's in the mail :-)

      Delete
    4. "Only send $4.95 for shipping and handling!"

      For your readers in germany? I'll pay 10€ for shipping:-) of course

      Thanks Dan for your work

      Dakac

      Delete
  4. I agree Mr. Norcini I do miss you on KWN if your opinion on the flash up crash has put you at odds with the other KWN contributors ( I agree with you btw) do you think you could do a weekly metals market wrap on this site? Thanks and keep up the good work!

    ReplyDelete
    Replies
    1. gadsen$ever;

      Thanks for the comments. I am not sure when the KWN metals wrap will start up again or if it will.

      I wish Eric would post some sort of notice over there at the intro to the metals wrap page.

      Delete
    2. Too bad for kwn readers if you are not accessible from there anymore, one way or another. I hope they'll keep interviewing you on a different format, at least.

      Delete
  5. Thanks Dan, I'll add the ma30 weekly to my chart.

    ReplyDelete
  6. Well, with the information provided here, it should be worth at least $200. Someone tell me if this is not the way it works. This guy draghi is in bed with his wife or girlfriend, having a ball, when the phone rings and one of his friends say, I am short the euro and getting hurt. Do something about it. So he calls the press, says a few words about how the higher euro is hurting, and goes back to his girlfriend. The euro immediately trades from 137.40 to 136.70 and never takes out the high. And draghi gets a nice envelope the next day. Its amazing how they always seem to say something at the highs or lows of any move. In the middle, they are enjoying their girlfriends.

    ReplyDelete
    Replies
    1. Arnie,

      That I believe is what these bureaucrats think their job is; namely to maintain confidence and provide press with bombastic titles so public would read about their sexual exploits and not about how their money is evaporating at accelerating speeds.

      Delete
  7. This comment has been removed by the author.

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  8. >>>Let the longer term charts guide your "big picture" view when you trade. If you are nimble and can move into and out of the market quickly, you can trade on much shorter time frame intervals.<<<

    Yeah, like Friday, flat, short, long. Not making a bunch of money but it's good practice to try to stay "in phase".
    And I got your message, small bites.

    Thanks, Steins


    ReplyDelete
  9. Dan,

    The COT report on Friday showed a measly reduction in shorts by the large specs, and barely any gold longs added. So basically we are just seeing spurts of short covering again.

    ReplyDelete
    Replies
    1. So what you are suggesting is that there is more ( short) fuel left in the tank to power this rocket up some more ? like may be to 1300 ?

      Delete
    2. Jesse;

      Yes, not much movement among traders up through Tuesday of the past week although the COT did not catch the last three days. My guess is that there is indeed some fresh buying on the part of hedge funds but that buying is outnumbered by larger amounts of short covering from that same category.

      We'll get another peek next Friday.

      Thanks...

      Delete
  10. Dan what time period are you using on the ADX, Thanks

    ReplyDelete
    Replies
    1. rlm;

      I use 14 days but will tweak it at times to see if I can optimize it a bit.

      Delete
  11. The usual suspects on KWN now predicting another huge collapse, crash, etc. in 2014 and telling people to get out of the system.

    Except there's one thing.....

    The "Terrifying Collapse" has already happened.

    In the gold and silver mining sector.

    Anyone who got out of the system and went into gold lost huge last year.

    And those who stayed in the system, fully invested in the S & P 500, junk bonds, and muni-bonds are still way, way, way ahead of this time last year, even if we have a 15% correction this month in equities.

    ReplyDelete
    Replies
    1. Yes Mark.
      With 20/20 hindsight I too know what I should have done. Your getting a little repetitive. Try finding another slant on the problem as many are ignoring you now.

      Delete
  12. @Mark

    I hear the TBTF banks are taking requests for custom "shearing patterns" on a FCFS basis at "askjamie.com"... but hurry, as it's a limited time offer.

    ur welcome

    ReplyDelete
  13. Dan,

    Missed the "flash crash" debate and just reviewed some of your thoughts on it, and the general issues regarding manipulation.

    Apologies if you've covered this simple point before, but how do you explain the obvious daily patterns, and more importantly the regular waterfall like drops from wiping out the bid stack at times of low volume... resulting in max negative price affect?

    Note: My opinion is both sides are right... the banks do manipulate (my take on the above question), but the technicals play a huge role in market pricing (traders and bots... and the more in depth issues you presented ).

    ReplyDelete
    Replies
    1. SRV ES339;

      Thanks for the comments.

      I do not doubt that there is some entity/entities trying to knock down the gold price at times during the recent year. What I dispute is the contention, either implied or outrightly stated that it is the bullion banks doing so at the behest of the feds.

      There is no reason to manipulate the gold price in the current environment in my view because two of the five main pillars necessary for gold to be in a bull market are not present, namely a sinking US Dollar and an overall rising trend in commodity prices.

      The DOllar has been firm and commodity prices have been moving lower, some making multi-year lows as a matter of fact. In that environment, gold lacks a catalyst to mount a SUSTAINED move higher.

      Hedge funds love to take advantage of low liquidity trading conditions to push markets around in the direction that they want it to move. There is nothing illegal about what they do; the problem is for us traders that it forces us to react.

      HEre is a major problem with the vast majority of people who tell us that every single sharp move lower in gold, whether it comes during thin trading conditions or not, is caused by the evil gold price manipulation forces - they simply do not trade other markets for a living and thus do not understand that this sort of thing HAPPENS ALL THE TIME in other markets.

      Not that I would relish the idea of making more work for myself than I already have, but I could easily produce charts of wheat, soybeans, hogs, etc that have exactly the same sort of either sharp drops lower or big ramps higher, during thin Asian session trading conditions.

      My take on the manipulation is very simple - the feds do not need to fight a FALLING GOLD PRICE. They view gold as competition to the US Dollar and thus, when the US Dollar was in a major bear market and commodities were soaring to the stratosphere, they were greatly concerned about what a sharply rising gold price would be signaling, namely a loss of confidence in the currency and a real fear of inflationary pressures as a result. During that time is when gold was being restrained on the upside by large bullion bank selling.

      The last two years it has been falling of its own weight as it is an environment, in the minds of most investors, in which inflation is non-existent. Since gold throws of ZERO yield, all gains must come from appreciation in price for investors who want to own it. When stocks are soaring and making 20+% returns on investment, who needs gold?

      Gold's day will come again as sentiment shifts. That is what we are trying to read here.

      Delete
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      Delete
  14. BTW, for all of you that state gold bugs to not claim manipulation when gold is going up:

    Jim Sinclair has repeatedly said it is manipulated up as well. He tends to be the object of most critics so I do want to point that out that he recognizes manipulation in both directions. And I would bet anything that he is right on that depending on the day or hour. Right now, I firmly believe the central banks, due to the fact they have never been in the current situation, do not know which way to manipulate in their best interest!!! Uncertainty will be ruling the near future.

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  16. 4 million oz coming on the offer any second now …. LOL

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  17. Dan; 2 items that you may want to convey to your readers and they are, that the gold mkt is a tiny, tiny, tiny mkt compared to the debt mkts of the world, and secondly, what are they seeing when they are looking at the $? The only fiat currencies out there that have a short term shot at going higher vs. the $ are the Cable and the Euro, and if they ever did their homework they would see that Cable is now in about a 85 year bear mkt, and as far as the Euro goes, before it is all said and done, it will cease existing; I just do not know how they will roll it out or in or upside down, or whatever, but it is truly an experiment on its last legs, and that is all from sparks

    ReplyDelete
  18. GLD and GDX imploding again as the Turkish Lira rockets out of the hole as their central bank intervenes.

    Last night, Japanese 20-yr. bond yields crashed to 1.44%, as investors pile into paper come hell or high water during a crisis, regardless of 200% debt/gdp and largest trade deficit in world history.

    Nobody wants gold, because today each crisis is dealt with instantaneously by TPTB and the TBTF banks.

    Stay in the System

    ReplyDelete

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