So, apologies for not writing for a while. I’ve been gone and moved countries, and it’ll be on the thin side for a few more days while I get set up. Just a quick recap of what happened while I haven’t posted:
Fundamentally, on the bigger picture side: Nothing.
Stocks are marginally up and volatility is towards the lower arts of the range that has been established, nothing really groundbreaking.
So, lets return to my darling: gold.
We are in technical mode!
So, yeah, looking at this chart, courtesy of CMC Markets, we see the bottom support/resistance line I’ve mentioned earlier (1733) and the top breakout like at 1795. The little filled triangle is the triangle I mentioned last Wednesday, and look where that got us! Wacky Wednesday indeed.
I want to highlight a little closer the price action of that box, and more specifically the bottom part. This price action shows that price not only pulled below the 1733 area by more than a percent, but actually had to find the “hook” at 1712 which was created prior to the 1733 line. These are some of the strongest indications in momentum trading of people unloading and re-entering to actually use the full leverage of their gains and use the gains to trade with 100% effective margin. (Gains dilute your margin leverage effect, so selling and re-entering is important to maintain performance.)
Similarly, the price fell slowly at first, gathered pace, traders reorganized at 1830, saw that the move was strong and on the third test of the 4 hr 20 EMA, absolutely pummeled price with the full force of their newly profited accounts, forcing gold to give up $100 in a matter of less than 8 hrs! Another sell move was in the works, which was slightly slower, but that it managed to pierce the 1733 level (which should have scared shorters off) indicates that there was enough cash to be deployed in the shorting margin accounts that the longs could not enter forcefully enough until the hook level at 1712.
So, we can conclude that there was a whole lot of fast, speculative money involved in this 10% slide, and that it gave the shorters a fresh lease on life. Now, price has created a weird, not-quite-triangle formation, I would rather say cup-and-handle with the upper line, which got broken handsomely upwards at the edge (which indicates that, in fact, it was a cup-and-handle, triangles don’t run to completion normally) passing the 20 EMA as well and establishing above it. Now, if it establishes above 1832, which is the 61.8% fib of the move in the box, we should have a new attempt at the 1840 level, which is where the “cup” formed, and represents the last area of resistance for a new leg up towards the higher areas of the 1800’s.
Still, there is now a rather informative picture that the trading money is with gold, and that fundamentals are rather out the window. Don’t expect the volatility in this metal to die down anytime soon, and remember: both the speculative money and the safe money rarely go to the same asset class. Now, gold manages to attract both. Think of what that means and be very, very careful in biasing your look on your indicators accordingly.