Hourly Action In Gold From Trader Dan

Posted at 3:23 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Gold bulls managed to build on yesterday’s technical gains and moved prices on up and into the 40 day moving average before selling appeared the blunt the change higher. It has still not broken free of that downsloping trendline which dominates its daily chart but it is closing in on it. The short term 10 day moving average has turned up which is friendly especially since gold bounced higher off of its rising 100 day moving average but the 40 and 50 days are still moving lower. Thus there is still no clear trend that has been defined – the long term is up (rising 100 day MA), the intermediate is still down (falling 40 and 50 day MA) and the short term is up (rising 10 day MA). That works to give a bit of a mixed signal which is why we need to see further strength next week to build on this week’s impressive performance. Price must take out both the downsloping trendline and the 40 day MA and then 50 day MA to give the bulls all the wind at their back. Bears are hoping to thwart the rise near $920 – $925. The weekly chart looks much better now.

The mining shares as indicated by the HUI and the XAU outperformed their counterpart at the Comex. The HUI in particular has victory within the bulls’ grasp if it can maintain it gains going into the closing bell today. It looks to have confirmed a double bottom near 275 as long as it can close convincingly above the 305 level. A failure here when it closes will embolden bears. That is why it is critical that bulls stand their ground if they hope to engender more short covering and attract new allies. As price now stands on that index at the time I am writing this, it has moved above last week’s high, taken out the 40, 50 and 20 day moving averages, bounced from the 100 day moving average and flipped the 10 day MA higher. It still has some work to do to repair the sharp plunge that occurred in the first week of April but the price action is quite bullish in the short term.

Euro gold has been hovering near the 680 level and thus far looks to be finding fairly good support near that region the last few days. Sterling gold is oscillating around the 610 level. It would be helpful to see it stabilizing and moving higher from here as the ideal setup for sustained gold rallies is a simultaneous move higher for gold priced across a wide basket of currencies. Remember, the last leg higher in gold was led by a move higher while priced in terms of the European currencies. Gold rallies that tend to be only in Dollar price terms do not have the staying power that the alternative does.

Speaking of the Dollar, it suffered a major technical setback in today’s session plunging beneath the 10 , 20, and most importantly, the 100 day moving average. The weekly chart is threatening a breakdown of a bearish pennant formation which would tend to validate the double top formed just above the 89 level. The Dollar has significant double bottom technical support near  83.50 on that same chart and if that were to give way we could see a sharp, swift move down to near the 82 level. It will have to climb back above 87 to get out of immediate danger. For the most part it continues to move inversely to the US equity markets falling when they rise and rising when they fall.  I should note here that the measure of risk sentiment, the Euro-Yen cross, is strongly higher today.

Gold deliveries for April reached 1.28 million ounces. The last two trading days, open interest has increased in the April gold contract and deliveries have increased also. The stoppers obviously have clients who want physical bars or are obtaining them for their own accounts.

Copper recovered a large portion of yesterday’s losses today but it is difficult at this point to say whether this was just shorts ringing the cash register after its sharp decline from the $2.20 level this week or the end of a correction in price after a prolonged, sustained rally dating back to March of this year. Next week’s price action will be most telling as to its future course. Copper has been drawing support from Chinese buying of the metal for restocking purposes and should that buying abate for any reason, it will be left to fend for itself

Crude oil not only managed to claw its way back to the $50 level but exceeded that and pushed on up almost $52. Between strength in crude, sugar and the metals, the CCI (Continuous commodity Index) moved higher today recapturing just about all of this week’s previous losses. It continues to move along a gently, upcurving or rounded bottom formation. It is evident that the commodity markets are no longer pricing in deflation but have now moved to a more forward looking inflation problem down the road ahead. Only a break below the December 2008 low would cause me to change that view. As stated here previously, a rising CCI is beneficial for gold. Again, the kind of chart pattern being carved out by this index is one that does not anticipate a sharp upturn in economic activity but rather a sort of rising crawl out of the current morass. At some point the inflationary impact of the reckless quantitative easing policies of more than a few Central Banks is going to turn this index into a steeper uptrend in price. We will be able to see the shift in psychology take place by monitoring this chart. My fear is that this genie will in no wise be able to be shoved back into his bottle.

That brings me to the action in the bond market. After managing a brief bounce yesterday and allowing the bond bulls to breathe a sigh of relief, bonds resumed their downward trend within that broad range defined by the huge range day of the Fed’s quantitative easing announcement. Bonds are now within a whisker of taking out the low of that day (16 ticks to be exact). If they do break down, the Fed’s intention to artificially prop up the market and by consequence shove long term rates lower, is going to be severely tested. It is looking increasingly likely that the bond market vigilantes – those extinct or at least hibernating species – are making a reappearance. And why should they not? The sum of money that is being printed into existence is a virtual guarantee that the plague of inflation is going to descend on this nation and consume all that it touches, in much the same fashion as the locust swarm did to biblical Egypt. Thus far the locusts have not visited us – but price action in the bond market will tell us when to expect their arrival. The scene I envision in my mind as I watch the price action in the bonds is a picture of a peasant with a straw broom in his hand wildly swinging away at a cloud of locusts swarming all around him and attempting to beat back the millions of invading insects in the desperate hope of avoiding complete ruin.

About the only saving grace that I can see for the bond have been equity weakness. If equities fail near current level then bond bulls will probably dodge a bullet. Barring that however, they are in a tenuous condition to say the least.

Meanwhile US equities continue to move blithely higher in apparent obliviousness to all that ails us. My pal Dave informed me this AM in an email that insider selling has reached levels last seen in October 2007, right before the market peaked and the 17 month bear market began. That is something that should not be ignored.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini