Two Markets That We Must Look At Closely This Weekend

Posted on by The INO.com Team

Here are the two markets I am looking at:

1.Spot Gold - SYMBOL XAUUSDO  If spot gold closes over $989.85 it will be a new high close for the year on a weekly basis. I would take this as a very bullish sign for next week. (CONFIRMED)

2. Dollar Index - SYMBOL DX  The same goes for the dollar index. A close today (Friday) below 78.04 should be viewed as very negative for the US dollar.

Both markets are headed in opposite directions and both have very powerful chart formations. Look for gold to move higher, and the dollar index to move lower.

When most traders return next week from their summer hiatus and start viewing the markets more seriously, I expect these moves will begin to accelerate.

Enjoy this last hurrah of summer.

All the best,
Adam Hewison

28 thoughts on “Two Markets That We Must Look At Closely This Weekend”

  1. Looking at the Symmetrical triangle formation of Gold between February and September 2009, it looks that it is headed to reach a minimum of $1050 in the short term.

    My conclusion is based on the technical fact of how the minimum price objective is calculated when trading with symmetrical triangle formations: First we measure from the highest high point on one trendline to the lowest low point on the opposite trendline. Both these points will be located on the far left of the formation. Next, locate the "apex" of the triangle (the point where the trendlines converge). Take the result of the measurement of the height of the triangle and add it to the price marked by the apex of the triangle where the upside breakout occurs.

    good luck in your trading!

  2. This is great stuff.

    On the one hand, there is a strong argument to trade on the technicals.

    On the other, there is the fact that gold is a crazy market that seldom follows the technicals to which the recent lackluster record of the MC triangles (and other prognostications) will attest.

    To me Gold is impossible to trade in this range.

    I am a believer in the conspiracy theory that the Administration does not want to see gold higher.

    Therefore I will reluctantly follow the age-old adage "never bet against the Fed".

    As Adam points out, Gold should go higher, much higher. But the downside associated with going against the Fed scares me more than the upside attracts me - Maybe when it is firmly over $1,000 (if it is not too late by then).

    Great story Marc!

    Thanks for sharing it.

    Best wishes all,

    Patrick

  3. Marc:

    You wrote above that, "Sentiment is in the upper 80’s/lower 90’s percentile, almost at the same level that we were at when we made the last 2 tops!" And you wondered who was left to buy gold.

    According to Mark Hulbert, in an article dated yesterday, September 4, 2009, sentiment is only 25.2%. So if he is correct, there are a lot of traders who will be caught flat footed by this rise--especially if we get the breakout above $1,000 which I believe is coming.

    You can read the Hulbert article, with a chart of sentiment at prior price peaks here:

    http://www.marketwatch.com/story/contrarians-see-hope-for-gold-breakthrough-2009-09-04.

    By the way, the 5X3 Point and Figure chart of gold, has the most beautiful reverse head and shoulders formation you will ever see, which certainly looks like it is pointing to the big breakout you(and I) are expecting. You can see the Point and Figure chart here:

    http://www.the-privateer.com/chart/gold-pf.html

    Tom

  4. Thanks, Marc G. for sharing your memories ... they brought back my own ... that is, the short S&P trade kept overnight (day-trader gone greedy) because of the Iraqi attack assumption ... not a happy end to that trade, either.

  5. Adam, I've been following the gold series here for quite some time, and at the same time assessing the trade triangles.

    I think they would be an excellent confirmation of other technical indicators in use, making a trading decision easier than it otherwise might be. The very long term gold chart over the last three years would have suggested it was this very week a breakout was supposed to happen, based on an analogous move in the gold price in 2007. We closed at the high, which is a good sign, but the hurdle will be options expiry week.

    One chart that I have been wondering about is ¥Gold, due to the extreme position of the black line in Wilder's ADX indicator. This one is saying either we have a meltup in the ¥ or an otherwise sharp increase in the ¥Gold price.

    Either way a major move in the currencies going forward that may support gold investment seems in the cards.

    Take Care, and All The Best.

    F6

  7. Marc G.,

    Awesome story- I enjoyed it. Do you know how long it took Mr. Big to break even or did he take the loss?

    What happened to Miss Universe-

  8. Great story Marc... from someone who's walked the walk, just like Adam has. Thanks and thanks to Adam for his excellent frequent videos and market commentary. He's even churning them out on vacation... now there's dedication. You can take Adam out of the market but you can't take the market out of Adam, little wonder he's a success story. "The harder I work the luckier I get" springs to mind. The golfer Tony Jacklin once said that but I've a feeling he nicked it from someone else. (Apologies Tony if you're looking in and I'm wrong)

    Just thought I'd pop by and give my 2 pennies worth. I'm an inexpereinced newbie trader/investor. If you look at yesterdays volume characteristics of the US indices they are all going up on much lighter volume after this weeks sell off. On the ESU9 (which I'm short...eek overnight/weekend!)we've just about hit the confluence area at 1020 which is approximately the 0.618 retracement of the big move down and the 0.786 retracement of the smaller move. I'm looking for a heavy sell off on Tuesday with the icing on the cake being a gap up in the morning so I can add to my short position. I think we could see this to attract in the herd before the guilliotines comes down. Chop, Chop, Chop :-0

    I noticed the weekly volume on the GLD was also much higher at the last gold high in Feb than this attempt. Maybe that's a tell tale sign that the bursting of $1000 gold and close above is not to be just yet.

    Looks to me the deflation trade is on... stocks down, PM's down, oil and commods. down, treasuries up, dollar up etc.

    I must confesss this is what I thought was going to happen when we had the recent H&S pattern on the S&P. Just highlights that we are in the probability game and position sizing, the use of stops and good money management are just a few of the essentials of success.

    Have a nice holiday everyone 🙂

    Rob (who is not on holiday on Monday - from the North of England):-(

  9. WOW, what an article, that Marc G, That's worth my long weekend to study it over and over again, I hope more of you like Marc G. get busy and give us more of your thoughts.

  10. Hey Gang,

    Nothing is ever obvious in this world, least of all, in the realm of commodities. I traded in the gold ring (Comex) for 14 years and the one thing that kept me alive was knowing that I never know anything!

    Gold seemed to trade without rhyme or reason most of the time, and it was often subject to the whims and fancies of some of the larger customers, whose reasons were totally detached from anything you could make sense of out in "the real world". The metal has very little industrial use i.e. it's only a small percentage of it's actual demand, so most of it is highly speculative, and feeds upon the fears and greed of many of the players. What I am trying to say is that whatever gold is perceived to be a hedge against (war, spiraling inflation, mass chaos, etc.) it's been a miserable failure! We shouldn't be too surprised, though, since gold derives almost all of it's value from being a pretty, shiny metal!

    I recall one night, in particular,many years ago, I was out to dinner with several, big gold traders (I don't mean that they were tall, but traded huge quantities!)and they were all loaded up in front of rumors that we were going to attack Iraq very, very soon! If I am correct, it was part of Operation Desert Shield, our Commander-in-Chief was Pres. George (Papa) Bush and it was around 7:00 PM our time on Jan. 16th. It's funny, but I can still tell you the exact dates of 5 or 6 of our biggest trading days ever in Gold, even though they were 20-30 years ago!
    This is because you don't easily forget the days that you were actually in "The Twilight Zone"!

    Anyway, one of the fellows we were out with was rather rich and sitting there with his date, who was the current Miss Universe at the time, and there were several Wilhemina and Ford models at the table with us, to give you an idea of the atmosphere there, and the decadence, and sure enough, the news spread like wild-fire.....bombs were dropping on Iraq in a BIG way!! The table rejoiced (not me, because I NEVER, EVER carried overnight positions, as a firm policy), but, our one guy, RICH GUY, who was reportedly long 20,000 oz. of Gold, whipped out his phone and, did the only thing that any prudent investor would tell you to do, bought 10,000 oz. (100 contracts) more of Gold!!!

    Wow! What a pair! On him AND his date! But, you had to admire a guy like that, who knew that when you have your hands around the neck of the market, you must squeeze the life out of it for everything it's worth, until it's not breathing anymore! One must establish that he is bigger, and more cunning, than the market!

    Some of you may have guessed where this story is leading, but we had closed that day around $403/ounce for Gold (Yep, that was a high price at the time!!!) During the fiasco in the restaurant, spot Gold was being quoted in $5 spreads and the highest one I remember hearing was in the $430's, like Gold: $432.00 bid at $437.00 offered.

    By the time I got home from the buying bonanza and concurrent celebration at the restaurant, I had put on the news, about 11:00 PM, and all the reports had indicated that Iraq's airfields had been destroyed, their oil pipelines were obliterated, there was no electricity anywhere and no resistance to our fighter jets, either. All along, there had been many rumors about how much equipment and training Iraq had received from the Russians, and how difficult they might be to defeat in a battle.

    As I sat in my easy chair, I was thinking, "This Damn war sounds like it's OVER!!!". In ONE night!! I actually thought about breaking my Golden Rule and taking an overnight position: Short! I picked up the phone to get a quote, and I heard..."Gold is now $411.00 bid at $414.00 offered".
    I slammed down the phone.

    "%$#@ &%&*#@$& &%&%$,I MISSED IT!!!!"

    Well, I thought about it further and said to myself, "Self, if this thing is really over, we could go down even further!" So, I picked up the phone again to get another quote, and I heard..."Gold is now.....$401.00 bid at $404.00 offered"! Well, see the last line of the above paragraph and intensify it by 10!

    The next morning, I went in to trade the Gold, as I usually do, and there were a lot of somber faces! "What's the call in Gold?", I asked. "Limit down" was what I thought I heard, but I knew it couldn't possibly be true!! Yep, it was true, Gold was now down in the 380's and locked down the limit, so you couldn't even trade it! This is one of those nightmare stories that are the reason you sign all those lengthy disclaimers any time you open an account to trade anything, especially commodities.

    Well, if that alone wasn't depressing enough, about half a dozen of the traders in the gold pit were OUT OF BUSINESS, kaput, done, TUPACed, cooked, History! Probably countless more of the faceless customers that we never got to see, being in the ring.

    Some of the people that I knew approached me for help. They would say something like, "Marc, I'm still long 22 contracts of Gold. Could you spot me $25,000 and I'll get it right back to you as soon as I'm back on my feet". I looked up and said, "Do I know you?"

    Several comments here: first of all, I guess if I had lots of money at the time I might have reluctantly helped a few of them out. I say 'reluctantly' because here I was, having been "smart" enough not to be caught with a position overnight, especially one that could knock me out of the box, and now I was supposed to lend money to these fellows who were NOT that smart (as in "greedy") and hope that they get back on their feet and then, remember that they owed me a considerable sum of cash! "Hhhmmm! Can I 'pass' on this deal, thanks anyway!"

    Lastly, I just want to tell people out there, especially the newcomers, that there are always different ways to think about the same thing. I believe the funds are as long as they can possibly get right now, and, since they are the major buyers in this rally, I would like to know, whose left to buy it? Sentiment is in the upper 80's/lower 90's percentile, almost at the same level that we were at when we made the last 2 tops! I think we might be able to surpass this year's high, but I would be surprised if we overtook the All-time high, which we made in March '08 (was it $1047?). By the way, remember what it was like when Gold was trading up there and how the Crude Oil felt when it was moving up $5-$10/barrel everyday until it hit $147/barrel in July of 2008! Let me tell you what I remember: there were NO bears!

    Wow! I swear that when I started, this was going to be a 4 or 5 sentence comment! Oh, well, that's commodities!!!!!! And, when you're lighting your grill for the last BBQ of this lightning-swift Summer season, remember that the principles of lighting that grill are the same as the ones that pertain to trading gold:

    Don't get Burned!". Marc G.

    2. Great Story Marc G. and thank you for sharing it. You remind us traders to always be prepared for the possibility (or should I say probability) that we are occasionally wrong. I wonder how much your "Rich Guy" friend lost that day...Ouch!

  11. On top off all these bearish gold comments, we have a hangman candle today. Gold is short term overbought. As well the long term weekly triangle pattern has not clearly been broken. I don't think we should have any ticker tape parades until a weekly close above 1050. BTW the gold miners are kicking on the metal itself (finally).

    When you apply a weekly slow stochastic gold is also clearly overbought. And when investors around the world dump their US stocks because that's what they are programmed to do in Sept & Oct, plan B for all the herds is to go do the smart thing lol and buy the US $. And you guessed it, the US $ is weekly oversold. Prime conditions for gold failure.

    Don't forget, the Obama Administration's job is to make the air smell like roses. How do you do that, extinguish gold by getting Bear Sterns to sell all their $750 gold.

  13. I would not be so sure of gold's potential move to the upside at this time. The weekly close on the continous futures (as shown in the data at futuresource.com has the close of the week 2/20/2009 as 1001.8 and the close of this week as 9/4/2009 as 994.9. However, not to quibble over data inflections (and I am more interested in daily highs).

    The real question is the stock market. If it crashes, as I believe it will, (and we have may already seen the top in SP500 at 1038.75 on 8/31) a lot of the baby bulls in equities (late comers to the bounce off the 6 Mar 09 lows of 665.75 ES) may have exhausted their margins and have to add to the selling. Employment is low and falling (especially in the full-time part of the labor market), house prices are falling, companies have done all the cost cut-cutting they can, and bankruptcies and foreclosers are still rising. The CDO market (the other shoe) has yet to fall.

    When, stocks start to fall, retail gold clients will sell their gold (especially that held as EFTs). The dollar, as measured by the DX index has not broken its lows. It is down as it should be with huge budget deficits and all the other economic factors above. Also, if gold breaks $835 we should see hedge funds and others accelerate the move to the downside. Gold has had 4 tops (with the current top being number 5). The highest price I have on recorded is the 17-Mar-08 High of 1033.9 (which occured in the early hours of Sunday night as I recall).

    Bottom line for me is that 1020 to 905 is the "indecision" area. It would have to close above 1020 (for 2 days) for me to be bullish and
    below 905 (for a week) for me to be bearish.

    If the markets correct hard the USD will once again be "safe" haven currency and DX will rally.

    (a video on insider selling ratio at a high It's the CEO of TrimTabs on Bloomberg...
    http://www.youtube.com/watch?v=i1MVBea6Qaw&e

  15. So, since Gold and the Greenback are supposed to be somewhat opposite, what is more likely to happen next week, since Gold has made the new high you talked about, but the Buck did has managed to stay above the 98 level?

    (I also wonder how much more of a beating the Dollar is supposed to take?)

    1. Brad,

      I believe it is just a question of time before the dam breaks for the dollar. The major trend is up for gold and down for the dollar.

      Thanks,

      Adam

  16. If the stock market sells off, some of that money will find its way into T-Bills and some into gold and silver, no doubt. Recently the weekly MACD turned up on instruments like SHY and IEF, which are treasury bond funds (I plotted these two over 6 months using weekly periods.)

    I also note that when I plot the U.S. dollar index over 2 years, weekly periods, the momentum chart has been moving higher since about mid-May, even though the U.S. dollar index has been falling, roughly, during this time.

    A 2-year chart of USDCAD, weekly periods, suggests that the U.S. dollar is indeed gaining strength against the Canadian dollar of late, with the slow stoch beginning to rise, along with a rising zig-zag pattern in momentum since about mid-May, and a MACD which looks like it is finally starting to turn up. We are also coming off the base of the Donchian channel, using n=24 for the period. A weekly green triggered on August 17th close to the Donchian base for USDCAD, which I would interpret in a positive way.

    Thus, one could make the argument that the U.S. dollar is basing and could move higher in the months to come, even if gold and silver do the same thing. If USDCAD does rise, I would expect the U.S. dollar to rise against other currencies as well, though this may be an erroneous assumption. I would also expect oil to fall.

    Recognia.Com recently identified a bullish symmetrical continuation triangle for SLV, with a target of about $18.50 (tops) which could be reached between now and mid-November. That would be about 15% upside from the current price for silver in the short run.

    It also identified a bullish continuation diamond for IAU, the iShares COMEX gold trust, which seems to trade in tandem with GLD. The upside here is about 25% to 30% but the timeframe is very long-term.

    Curiously, Recognia also identified SRS (ProShares Ultra-Short Real Estate) as a head-and-shoulders bottom recently with some 40% to 50% upside between now and mid-October.

    Can we conclude from all of this that gold and silver are going to rise and that the stock market along with oil will finally give way and fall over the next two months? Time will tell...

    1. Ahsan,

      It is impossible to predict the high price of gold in September.

      Our upside target price for gold is between $1,200 and $1,300 sometime in the next 3 to 6 months.

      Thanks,

      Adam

  19. The yellow dawg has a lot of overhead resistance at a thousand. Will bullion bank selling halt it for a third time? Their time may be running out this time around. It will be interesting to see what happens.

    1. Larry,

      Thank for your feedback.

      Friday's weekly close in spot gold is the highest weekly closing price for the year. The only higher weekly closing price was in March 9th of '08 at 1,002.50.

      All the best,

      Adam

  20. Gold is trading at 993. The dollar broke below 78.04 but then bounced a bit. Many gold stocks broke out and made nice runs over the past 3 days. This sector is quite small comparatively and can make large moves very quickly when momentum money moves into it.

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