Hourly Action In Gold From Trader Dan
Posted: Aug 26 2010 By: Dan Norcini Post Edited: August 26, 2010 at 2:14 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
It is generally not a good sign when a market moves lower after failing to sustain its gains on the release of “friendly” news. Such has been the case so far today with the S&P 500 as it popped higher when the unemployment numbers came in a bit less than the market had been anticipating. The bump higher attracted sellers instead which is most disconcerting if you happen to be a bull. It is early in the day yet as I write this so the longs can still turn it around but for now you can see the “risk” trades that were put on earlier coming right back off.
The Euro has lost a half a cent against the Dollar as the equity markets have faded off their best levels with the Yen moving a tad higher as once again, both it and the Dollar receive money flows whenever investors become nervous. Speaking of nervous, Forex traders are becoming increasingly worried that the Bank of Japan is getting ready to foray forth and inflict a dose of punishment upon the brazen speculators who have dared to bid the Yen higher. They apparently are getting ticked off that the stronger Yen is crimping their all-important export market as Japanese made products are losing competitiveness. Chatter is that the Japanese monetary lords will engage in a round of intervention and begin selling the yen combined with another dose of QE. We shall see but experience has taught me, all too painfully I might add, that once the Finance Ministry and/or the Bank of Japan begins expressing strong displeasure over the level of their yen, it is not the better part of wisdom to become too cocky or get too aggressive. That perhaps more than anything is keeping the Yen from moving sharply higher for the immediate future although you might see some of the bigger hedgies actually try to push their luck to see exactly what level will bring a potential response. In effect, players have been known to keep prodding until they get the intervention to see where the ceiling is for the short term. They can then buy on dips and sell the ceiling with the knowledge that the lords in Japan are pleased. Problem is that one never knows when the Japanese authorities will decide to play a few mind games and keep selling yen! Ouch….
I said all that to say that since the Yen has a fairly large weighting in the basket of currencies that make up the USDX, it movements are significant in attempting to ascertain where the Dollar is headed. With the current mindset being one of rushing into the Yen whenever there is an aversion to risk, the effect is to stem somewhat the corresponding rise in the Dollar on such occasions. Were it not for the Yen, the Dollar would respond more strongly to the rush into safe haven play. If the Japanese monetary authorities set a distinct line in the sand for their currency, it could be that any further risk aversion trades would see a much stronger rally in the Dollar.
The effect of the strong yen has been to mute somewhat the performance of gold when priced in Yen terms. Gold continues to remain very strong in terms of the European currencies, and the Canadian Dollar as well but has underperformed when viewed through the prism of the Yen price.
Open interest increased yesterday in both gold and silver but not to the extent I would have expected in silver given the magnitude of its recent rise. That tells me that whomever it is that has emerged in the West to challenge the perma shorts in that pit, they are being successful in squeezing some of their weaker cousins out of the market. I wish that this week’s CFTC today which will be released on Friday would have included yesterday’s positions as well as Tuesday’s to give us a more complete picture of who got forced out. What I am going to be looking at is the positions of the strong-handed shorts in that market. If we are going to see a legitimate commercial signal failure, it will show up here first. My own view at this point is that it is going to take a much stronger push on the part of the longs to get the Morgans of the world to run. The ones that are more than likely running right now are the funds on the short side and some of the CTA’s and other larger reportables. That is just a guess and I could be wrong but until tomorrow, all of us are guessing!
It looks as if some of the longs could not resist the urge to ring the cash register after price stalled out above $19. We will watch to see where chart support develops.
Open interest increases in gold signify that managed money continues to move into the metal. At 565,000 it is well off the record peak above 605,000. With price a mere $20 off its all time nominal high, it would be a relatively easy feat for the big funds to take it through that level. Question is are they ready to do so yet? Pit locals and other assorted option sellers are attempting to ply their craft of screwing the option buyers, which is the norm for the Comex crowd. Nothing like legalized theft. Gotta keep the exchange members employed. Then again, why else does anyone in their right mind pay those kinds of prices for a seat on the exchange? Answer – they get to regularly milk the public with a wink and a nod of the overseers.
Today’s high confirms the selling resistance shown on the daily chart. We watch now to see where buyers emerge.
Gold shares are unusually strong today given the weakness in gold today. It is however having difficulty near the 480 level, which as one can see from an examination of that chart, a region where sellers have surfaced in the past. If the share bulls can force this index up through 480 and hold it there on two consecutive closes, they have a clear shot at 495 – 500.
Bonds continue their relentless march north. There still is no sign of a technical top in that market although it is losing some upside momentum as it nears 137.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/08/August2610Gold.pdf
No comments:
Post a Comment