Three weeks ago on February 5th, we saw an extremely high level of fear in the market with selling vs. buying volume at a 9:1 ratio. We note that in 2009 this extreme level of fear occurred at the bottom of each significant pullback.

Since this panic selling low in February 2010 we have seen stocks and commodities work their way higher, which we expected. Overall the broad market looks as though it’s trying to make a move higher.

Below are some ETF charts of gold, silver, oil and the indexes.

Gold lead the market higher in 2009 and also lead the market lower in December of 2009. It looks as though gold could be starting a new trend higher.

You can see the clean breakout of the down channel and then a test of the channel at support. This type of price action also forms an inverse head and shoulders pattern for those who like trading patterns.  This is very bullish price action.

SLV Silver ETF – Daily Trading Chart
Silver has much of the same chart features as gold, but is slightly skewed. This is not particularly surprising though, as silver virtually always behaves with less defined chart patterns due to its characteristically funky price action.

USO Oil Fund – Daily Trading Chart
As with gold and silver, oil’s trading chart has formed a pivot low also, but the trend line is much steeper than what I am looking for. I prefer a flatter trend line as price growth is more sustainable.

As you can see in on the USO chart, back in December price rallied at almost the same angle as is currently the case, and then notice what happened. Once the momentum died out the price dropped straight back down. I call steep trends like this a Parabolic Rally.

Scroll up and look at the first chart (GLD) and observe the parabolic rally going into December. It too suffered a sharp drop straight back down when momentum died out.

Stock Indexes – SP500, Dow Jones, Russell 2000
Last week the market sold down the first half of the week, then bounced back up forming a possible pivot low. The daily chart for these indexes look virtually the same as the GLD, SLV and USO charts above for the past 5 trading sessions.

But, one little thing has me concerned….
When looking at the 5 minute intraday charts (posted below) you can see at the very last minute before the market closed HUGE selling volume flooded the ETFs. The market ended up losing all of its gain for the day.

With any luck this was just end-of-the-month hedge, mutual fund, etc. portfolio rebalancing. But I am somewhat concerned that more of this selling could step back into the market Monday or Tuesday.

Weekend Trading Conclusion:
Overall, last week started on a negative note but ended strong after forming a reversal pattern.

It looks as though stocks and commodities have formed an ABC retrace pattern and are now ready to move higher.

How much higher you ask?

Well, I believe 2010 is going to be a traders market. I envision an 8-12 month sideways consolidation (large bull flag) forming. If this materializes then buying on over sold dips, as we did on Feb 5th, and scaling out on strength at resistance levels will be our goal in the coming months.

A bunch of 4-8% trades is what I’m figuring, but with leveraged etfs we can double and triple those type of returns. Now that is something to anticipate with delighted optimism!

If you would like to receive my free weekly trading reports please visit TheGoldAndOilGuy at: www.TheTechnicalTraders.com

Chris Vermeulen

The Mess That Greenspan Made

Some of yesterday’s surge in the price of gold bullion was apparently driven by this report from Pravda that his since been de-bunked by the more mainstream financial press:

China has confirmed the intention to purchase 191.3 tons of gold from the International Monetary Fund at an open auction, Finmarket news agency said.
…
“Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market. China is interested in the development of the domestic consumer market,” the agency reports.

Well, maybe not - Reuters followed up and filed this report

:

Contacted by Reuters, the author of the Rough and Polished story, Nadezhda Shagrova, who works as a tour guide and journalist in Shanghai, said she did not have any official information to back up her story.

“The source for the story? Well, that’s been written about in lots of places. I mean, Xinhua news agency wrote about that and other official Chinese sources, lots of them. Why are you asking?”

Told that gold prices were moving on her story, she said: “No, no, there’s just no way that could be because of my article.”

As reported in China Economic Review this morning, an official at the China Gold Association said China would not buy any IMF gold, a view that has been widely held for many months since they are now the world’s number one producer of gold and, when combined with overseas acquisitions have a natural source of supply to add to their holdings.

The Mess That Greenspan Made

It’s been an interesting few days and an even more intriguing last two hours or so for both the trade-weighted U.S. dollar and the gold price as, on a daily basis at least, they now seem to be moving together more often than not. On Monday and Wednesday this week they were both down and now, today, they’re both up a little.

That area circled in yellow - around $1,100 an ounce in New York trading - seems to have been hotly contested over the last few days. Based on the latest economic developments in the U.S. (mostly bad) and the latest political intrigue involving Greece (mostly bad), anything could happen over the next day or so for the dollar, the euro, and the gold price.

By Jeff Clark, Casey’s Gold & Resource Report

How many IMF officials does it take to change a light bulb?

As you probably read, the International Monetary Fund announced they would proceed with selling the remaining 191.3 tonnes of gold from the 403.3 tonnes planned. The money is to be used for lending to poor countries. Lending implies the money will be repaid, which, in the case of the IMF, is a joke that isn’t funny. But that’s a topic for another day.

The IMF stated that sales will be conducted in the open market, which is interesting because until now, gold has only been made available to central banks. While the IMF remains open to central banks buying some of the gold, sales will be conducted “in a phased manner over time” to avoid disruptions to the open market.

So, will IMF sales depress the gold price? Well, remember the price rose with the first sale, when it was announced India was buying 200 tonnes of the 212 for sale. But that was an offtake deal, not an open market sale, so the question is legitimate.

One way to look at it is this: global mine production was 80.9 million ounces in 2009, so the IMF’s 6.7 million ounces could be a market-jolting 8.2% addition if dumped all at once. And an 8.2% load would indeed upset a market if we were talking about strawberries or anything else that people buy only for the purpose of consuming.

But most gold isn’t bought for the purpose of using it up. It’s bought for the purpose of holding it. So the relevant comparison for the IMF’s 6.7 million ounces isn’t annual mine production. Instead, we should compare it to the world’s existing stockpile of gold, which is roughly 2 billion ounces. The IMF sale would add just 0.3% to global inventory – hardly a market trasher.

Further, we’ve been down this road before with the IMF. When they sold gold in the 1970s, the price dropped upon the announcement of the sale, but then rose when actual sales took place.

And the dirty joke is this: when the IMF sold gold in the 1970s, it marked a bottom in the price. The late Jerome Smith advised always betting against the government: “When they’re unloading an asset, it’s time to buy.”

The IMF provides some very cushy jobs for the right people, along with a perpetual series of exquisitely catered conferences for the politically connected and politically correct. These people are not exactly known for being the brightest economic decision-makers. However noble their cause, the fact that they’re selling at all in the current environment, given the enormity of the monetary crisis that will only worsen as time goes on, tells me I want to be doing the opposite.

And that’s why the answers to my light bulb joke are as follows:

How many IMF officials does it take to change a light bulb?

None. Doesn’t gold glow in the dark?

One, but only if the ladder is padded.

Two. One to screw it in and one to screw it up.

Three, but nobody can find them.

Four, to form a panel to discuss which way to turn the bulb.

Five. One to change the bulb and four to buy the wine to celebrate.

Nine, to provide a quorum to vote on incandescent vs. fluorescent.

Eleven. One to hold the bulb, and ten to turn the house.

All of them. But only after dinner at L’Arpège (the most expensive restaurant in Paris).

While we’re convinced gold is headed much higher, is the recent correction over, signaling its time to jump in? Get our answer in the new issue of Casey’s Gold & Resource Report, which you can try risk-free here…

It’s been about eight days since we did a video on gold, and given the market action today I thought I would look at what is causing the downward pressure in this market.

If you did not watch my last video on gold, I strongly recommend you click here to watch the video titled “Five Reasons Why Gold Will Not Make a New High This Time” as it will give you a bigger picture of how we see this market playing out in the next 12 months.

Click The Chart Below to View The Video

Submitted by Nic Lenoir of ICAP

Game plan has been to play long in Gold since 1,063. However we advised taking chips off the table partially at 1,125 as the market has not validate a break-out with a daily close. We have pulled back on the 1,097/1,100 support zone today, we would be cautious here. If we break lower the market will drop to 1,076 (61.8% of recent rally, and support zone established January 28/29), and possibly down to 985/1,011 which cannot be violated at the risk of invalidating the bullish dynamic completely (keep in mind we are still fighting deflation in most developed economies…). On the upside we need a daily close above 1,125, and then 1,165 to confirm a rise towards new highs. Note that a drop to 1,076 followed by a rise past 1,125 would form an inverted H&S so the market would likely accelerate past 1,165 at that point.

Price action here again is to watch in parallel to the Dollar Index which is disaplying quite a bit of bearish divergence in the short-term. Our macro view is still for the USD to continue appreciating rather sharply, but short-term pressure is building for a correction lower. of later we have had Gold climbing concurrently with the USD but on a large scale/ timeframe I am not convinced such a dynamic is very sustainable.

Gold still looks very bullish. Actually, the more gold pulls back the more I like the chart. This daily chart shows a very nice bull flag. The price is currently testing the upper trend channel line and this is what makes me think we are going to see a pop in gold prices or a sharp drop.

I would like to see gold pullback one more time and make a new multi-week low before heading higher. We did see extreme fear in the market 2 weeks ago which is when we took some long positions, but the lighter volume rally is not giving me comfort in adding more positions at this time.

Weekend Trading Conclusion:
In short, we nailed the market bottom on February 5th taking some long positions in US and Canadian ETF’s. I tightened our protective stops for these positions a couple days later making sure to protect our hard earned money. The Canadian trades have performed extremely well for us.

Now we just wait for another low risk entry point which could happen this week depending on what the market does.

If you would like to receive my free weekly gold newsletter, please visit my website:

Chris Vermeulen
www.GoldAndOilGuy.com

Jesse’s Cafe’ Americain

Free E-Mail Trading Course Here

A few weeks ago on February 4th, I penned an article for Kitco forecasting the gold correction trends and the likely outcomes. My opinion was that gold was pulling back to work off excessive optimism from the early December 09 highs. This type of pullback was orderly and there was a gap at 102.50 on the GLD ETF that I believed would fill. The following day, that gap filled and gold hit a bottom at 1042 and has rallied much higher since. I opined that the rally in the US dollar was merely cosmetic against other world currencies, and that Gold was still the preferred asset to accumulate and would begin to move regardless of the dollar moves.

The recent technical move up in Gold only confirms that we are in the final five year window in my opinion where the investing public becomes “aware” that gold is real money.  In my August article last year, I discussed my thirteen year bull theory for the Gold market. The first five years from 2001-2006 was the “stealth bull” in Gold and Gold stocks.  The average Gold Fund ran up 30% a year for five years compounded.  By the time investors figure this out, they all pile in right near a five year peak.  The market then chops for three years sideways in an up and down fashion, getting nowhere.  Investors get bored, and then we move into the final five year stage where awareness takes hold and the bull cycle really takes off.

It is maybe the second inning of this five year stage, so the recent pullback in Gold to 1040 is normal, and the next advance is likely to be larger than the August to December advance. As this awareness grows, the bears get upset and try to explain how gold bulls are foolish. The investing public sometimes does not get enough credit for being correct, and in this case, those investing in Gold have been proven correct over and over again for the past nine years. They will be proven correct for the next few years as well as Gold continues to climb and  befuddle the gold bears of the world. You will know that Gold’s bull market has topped when all of the bears are completely silent and every Gold bull is running around screaming buy at the top of their lungs. Every time I have seen Gold pull back in the past nine years I have chuckled at how fast the erstwhile Gold bulls start getting nervous and the Gold bears pile on hard.  As long as I continue to see these behavioral patterns, and the technical and Elliott Wave patterns stay bullish, I will remain a Gold bull while trading around the important pivot highs and lows. As long as the pundits keep trying to talk Gold down, it will keep on rallying and fooling them until they are all believers. This is how the 13 year Tech Stock Bull unfolded from 1986-1999, and it’s how this Gold Bull is unfolding before your eyes.

It is interesting that Gold bottomed a few times and bounced off the 1070 areas, and then made what appears to be a final bottom around 1042 on February 5th and has rallied hard since then. In my opinion, Gold rallying past the 1040 and 1070 fibonacci pullback windows and now over 1,100 is indicative of a new wave of bullish advance taking us to $1325-$1350 at the next pivot top in Gold. It is as if Gold just cleared two important psychological hurdles at 1040 and 1070, and yet we see articles talking Gold down.

What many market pundits do not understand about Gold and it’s ascent since 2001 is that Gold is real money. Since most world currencies are nothing more than “burning matches” in a debt ridden world, Gold rises to the top of the asset class charts.  If you look at the Dow Jones average relative to Gold prices in the past ten years, you can see what real money is doing. The Dow is flat over ten years now while gold is up nearly 400% in the same period of time. Measure the Dow or the SP 500 index against Gold as your money indicator, and we are still in a major 10 year plus bear market. Folks, the Kondratiev winter is still here and the weather is about to get a lot colder.  In the winter cycle, all debt gets washed out of the system and this creates all kinds of carnage. Gold becomes favored “money” in this type of cycle.  Once this cycle completes, the “spring” comes and we start anew.  In the interim, look for Gold to continue ever higher and look for continuing trash talk by the pundits who don’t  get it.

I will be launching a new Market Trend Forecast service in early March of this year which will forecast the short, intermediate, and long term views of the markets, indices, ETF’s, and precious metals.  This will be in addition to my Active Trading Partners service. You can learn more at www.activetradingpartners.com , read our subscriber testimonials we have  compiled in 6 months since our July 2009 launch, and also review our past forecasts at www.activetradingpartner.com/articles.

David Banister