Sellers Dig In Yesterday – Buyers Dig In Today

Posted at 3:06 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Quite a battle royale is being waged at the current time in the gold market. The bullion banks are digging in at and above the $1600 level while buyers are digging in just above the $1580 level where a new support level is emerging. The victory will be to whichever side refuses to blink. Open interest readings are at relatively high levels so the stakes are serious.

Yesterday we had a bearish outside reversal pattern form on the short term charts that I employ; today we had a bullish thrusting pattern on that same chart. Bulls regained the broken short term support level near $1595 that had failed yesterday but did not manage to recapture the $1600 level for any significant length of time. They will need to clear and HOLD that level to set up a challenge of the bullion bank capping level at $1610.

The new support level formed just above the $1580. This level now takes on a new significance and will need to hold on any subsequent retreat in price to prevent any further long liquidation on the part of the shorter term oriented traders.

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For the time being, the bears still retain a slight advantage because of the inability of the bulls to hold $1600. Based on what I can see of the open interest readings, a fairly large contingent of brand new short sellers has formed. Some of them will be squeezed out if $1610 gives way as they are counting on that bearish outside reversal pattern to hold.

There are still plenty of cross currents at work in these markets which has kept just enough uncertainty in the minds of traders to keep most on pins and needles and ready to react very quickly to sudden changes in price. I might add what I said yesterday, the modus operandi is to react first and think later. We saw some of that in the long bond today. Yesterday I marvelled at the apparent "counterintuitive" 1 1/2 point rally based merely on a statement from the President that some progress was being made in the US debt limit negotiations. Traders today did have time to think about this overnight and took back a full point from the best levels of yesterday. Bonds are back to a holding pattern now as traders gauge the next direction for interest rates but most seem to agree with my assessment from yesterday that the sharp move higher was unwarranted.

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