Trader Dan comentaryPosted: May 04 2010 By: Dan Norcini Post Edited: May 4, 2010 at 2:18 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Gold priced in Euro terms, or Euro Gold as I prefer to call it,notched a brand new all time high at today’s PM fix finally clearingthe 900 level as it was fixed at €907.281. Yen gold also made anotherhigh at the PM Fix as did Sterling gold. This was prior to the sellingbarrage that swamped the commodity world in New York as the hedge fundswere busily disengorging themselves of anything that was remotelytangible and rushing wildly into the safety of, (drum roll here), paperbonds. Yessiree Bob, that is what I call a nice, “let me sleepcomfortably” trade. Uncle Sam is issuing these scraps of paper by thetrillions and investors can’t get enough of them throwing away gold inthe process. Exchanging gold for paper scraps whose yields are droppingoff a cliff – excuse me while I shake my head as I marvel at thisdisplay of mental acumen by the boy wonders of the hedge fund world.One computer algorithm to rule them all.
Don’t let today’s blind selling panic shake your settled convictionconcerning gold. Any setback in price is not going to last long as thecauses behind the continued strength in gold are intensifying, notlessening. Investors rightly fear a contagion effect from Greecetowards other weaker members of the Euro zone such as Spain andPortugal. Then there is Italy and perhaps some of the Eastern Europeannations bordering on the Euro zone.
This pales in comparison to what is occurring in the states here inthe US but the financial press will have nothing to do with that – fornow. German banks are stuck holding gobs of Greek debt but how wouldyou feel holding gobs of California’s, or Illinois’s, or New York’sdebt. What got the ball rolling downhill for Greece, even thougheveryone and their mother knew about it for a while, is the ratingsdowngrade by the rating agencies. Eventually those “way behind thecurve” folks will get around to training their guns on the various USStates. That is when things will get nasty.
With all this commodity related selling, copper is getting beatenwith an ugly stick having lost .40 over the last month and has nowsurrendered all of its gains for the year. The weekly chart still showsa market in an uptrend however so this indicator has not completelyrolled over as of yet. It would have to drop below $3.00 to have meconcerned about a double top although price is approaching both the 40week and 50 week moving averages. If it is going to hold, it will holdat either one of those two levels. That means copper bulls need to comeup with some sort of convincing argument to justify a resumption of theuptrend sooner rather than later.
Weakness in the base metals as well as platinum and palladium helped pull silver lower today.
Crude oil, another key commodity and forward looking indicator, isnot escaping the selling wave today either but at this point is stilltrading higher than where it began this year. It too has a weekly chartwhich shows a market in an uptrend. I would have to see crude oiltrading below $70 to say definitively that a longer term top is in.Crude could very well work in a broader trading range with a higherbias as it is entering a seasonally strong period. It spent the betterpart of February and March working between 83 and 78 before moving upto its current range between 87 and 80.
The equity markets have not been very kind to would-be shorts ( Ishould know) but today’s cascade into the abyss has created someserious technical chart damage. The S&P has been a one way tripnorth for three months now and it finally appears that the “nothing butblue skies” crowd has had a dose of reality. Soaring profits for thefinancial stocks has led many to conclude that the banking system isback on solid ground and given rise to hopes that lending would bepicking up as the economy supposedly garnered strength on thewillingness to borrow once again. The problem is that the banks aremaking money not by lending but more so by trading. Why take on riskwhen you can trade virtually risk free has been their motto. The higherthe long bond moves in price, the tougher it is for them to play theinterest rate differential game.
The S&P is now sitting squarely on its 50 day moving average onthe daily chart. A breach of this level which cannot be recoveredbefore the closing bell or additional downside action tomorrow thatcannot recapture this level, is going to turn many technical indicatorsthat the funds use to the sell side. The onus is now on the bulls toperform and see whether or not they can avoid handing control over themarket to the shorts. They have proved quite adept at snatching victoryout of the jaws of defeat this entire year. One thing working in thefavor of the bulls is that the longer-term oriented weekly chart stillshows the S&P in an uptrend with price well above the rising 40week and 50 week moving average although a poor close by the end ofthis week will tend to confirm the bearish engulfing pattern shown onthis same weekly chart. How this market closes Friday of this week isgoing to set the tone for some time.
The long bond took to the heavens today as it surged past my initialtarget near the 119 ^20 level moving al the way to 120 ^01 beforesetting back a tad. A strong finish to the week would set the bulls upfor a decent shot at 121 ^10. About those higher yields on your banksavings accounts – forget about those for now.
Based solely on the price charts as of today, one would be hardpressed to find the “V” shaped recovery chatter having any credibility.
One last comment about the HUI – the mining shares continue to be onthe receiving end of the hedge fund ratio trades. They got hit with adouble whammy – talk of a 40% Australian tax yesterday plus today’ssevere broad equity market sell off was too much for mining share bullsto handle. We will be watching to see when buying support emerges inthis sector. The shares are no longer the indicator for gold as theyonce were, not with the advent of the gold ETF’s which have siphonedoff a considerable amount of investment money that would otherwise befinding its way into the miners. Those who designed those infernalcreations, knew what they were doing.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini
