"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


Wednesday, August 28, 2013

Gold backs off from chart resistance

The region near $1434 - $1440 is proving to be a bridge too far for the gold bulls for the time being. You can see that this level held the market in check twice previously, once in late May and again in early June.

Bulls ran it up into this resistance zone this week but thus far have been met by solid selling. As stated in yesterday's comments, the market is overbought and is thus susceptible to a bout of profit taking.

There is psychological support first at $1400, then at $1380 and much better chart support down near $1355.

Markets which are reacting to news events can be very treacherous often making wild swings in price so traders be careful. Do not get too aggressive in here unless you have very deep pockets and are not overly leveraged. Better to make a smaller sum of money on a winning trade,  or lose a smaller sum of money on a trade gone bad, then to bet the farm and end up being a tenant worker!

There is a time to be brave and a time to be cautious.

Mining Shares Run into Chart Resistance

The mining shares, as evidenced by the HUI, have been very strong over the last three weeks making a nice run from near the 220 level all the way to 280. It is at this latter level that they have hit a wall for the time being. It was this same level back in late May/early June of this year which stymied their upward progress and sent them back to a test of the 245 level, a test which they subsequently failed before making a final low just below 210.

For now this level has been reinforced on the price chart. Translation - bears are digging in up at the recently made highs in the stocks that compose this particular index.

Based on some swing pattern analysis, the HUI has the potential to make a move lower into the 245 region ( the rectangular red box labeled support) where, if the uptrend is going to continue, they should uncover some decent buying.

If that were to fail, the index could sink back into the former gap region which extends down to 235. I would not expect that to fail should it happen for if it did, it would foreshadow a move back to 220.

For the bulls to ignite a sharper advance, 280 needs to be cleared and HELD.

The gold market is going to be very similar to the crude oil market for the near term in the sense of volatility tied to the situation in Syria. While I believe that gold has priced in a missile strike, I am unclear as to the extent or duration of such a strike. If it is indeed the pin prick which many feel it will be, it will accomplish nothing and will soon be forgotten. If it were to escalate into something deeper, then I feel that gold and crude will react more strongly.

The President's foolish blustering about "red lines" and ultimatums have boxed him into a  corner in which he appears buffoonish and inept if he does nothing but which runs a serious risk of further undermining the already sinking credibility of the US if the response is seen as a mere effort for him to save political face.

This is not our battle as there is no good outcome to intervening in this internal fight in a nation that has not threatened us or our allies directly. Either way, we will have to stay on our toes as traders as no one can be quite sure how all of this is going to play out or of the market reaction.