Commodities Rev Their Engines

 

By Stewart Thomson

June 19, 2012

 

  1. On the gold chart, the 14,7,7 series of the Stochastics indicator appears to be overbought.  To view the current situation, please click here now.
  2. This important indicator has risen to current levels four times since gold reached a high of about $1923.   In three of those situations, gold marched a lot higher before starting a new decline. 
  3. Also, these types of technically overbought situations often occur at the point of major breakouts.  Gold is chewing hard on resistance at $1630, which I’ve highlighted with a black line on that chart. 
  4. Is the dollarbug tree close to be felled by our gold beaver?
  5. Professional investors will buy price weakness regardless of whether the drifting wedge pattern holds or fails.  The first order of business when looking to benefit from higher gold prices is to prepare yourself to buy this ultimate asset at prices deep inside your “personal surprise zone”. 
  6. Anyone can predict higher prices.  Not just anyone can buy when their own analysis indicates that gold is in trouble.   Let’s take care of what we don’t know first, and what we think we know will look after itself.
  7. A “super wedge” pattern in gold is roughly occurring, roughly between $1500 and $1900.  It indicates that gold could soon begin rising towards the $2100-$2200 zone.  The amount of time spent building the wedge is a wild card that could allow gold to rise much higher!
  8. It’s not just gold that seems to be making “market waves” on the price grid.  Many other commodities are coming alive and seem eager to move higher. 
  9. To view one such example, please click here now.  Natural gas broke up from a downtrend line early this morning.  Note the three areas of HSR (horizontal support & resistance) in play.  HSR2 is where we are now.
  10. The use of some short positions when accumulating an asset like natural gas is very important.  Gas has to be stored, and there’s a higher cost to storing gas than storing gold. 
  11. Please click here now.  You are looking at UNG-nyse, which is the ETF proxy fund for natural gas.  It’s fallen from about $511.12 to about $14.25.
  12. The last part of the decline was particularly horrible because UNG continued to decline while natural gas itself drifted sideways.
  13. Please click here now.  That is a chart of a leveraged fund that shorts natural gas.  UNG longs suffered enormous losses, but HND.to longs gained hundreds of percent.  The short position produced a lot of emotional and financial benefit for UNG accumulators.
  14. I endorse the use of an “up to 30%” short position when accumulating any investment, meaning that your short position should not exceed 30% of the dollar size of your long one.
  15. If the accumulated asset rises 10% in the market and you are 70% long, then you make 7%, which is a solid number.  I’m currently about 89% long natural gas, and 11% short.
  16. I’d like silver fans to please click here now.  Silver is like gold’s little brother, and that’s not a bad thing to be in a super-crisis where gold plays the role of punisher. 
  17. Note the bottoming action that produced the first two lows in the correction; they were sharp one-day events.  The third bottom is taking time to form.  This type of basing action often occurs before price moves much higher.
  18. There is HSR at about $30.  Silver needs to trade consistently over $30 to attract more speculative funds, but I’d prefer to see it just slowly plod higher without all the drama.  If gold rises up and out of its super-wedge pattern, silver is highly likely to do the same thing.    
  19. Today is the first day of the FOMC meeting.  When QE was brought into play after the 2008 meltdown, the system was probably only 24 hours away from closing down.  The system is weaker now than it was then, but that doesn’t mean it is closer to closing down.  A bankrupt entity can continue to operate if it receives ongoing lines of credit.
  20. QE is really reserved for extreme market debacles.  I would argue that the situation in Europe qualifies as just such a debacle, but only the Fed knows what they are going to announce tomorrow.  If their focus has shifted from Europe to America, further credit easing could be delayed, despite the growing weakness of the American economy.
  21. I think we are all going be mildly disappointed by this FOMC meeting, but the next one will be a barnburner!
  22. A lot of flag-like patterns have been occurring lately on the intraday charts of major commodities.  Please click here now.  That’s a one-month chart of corn, one of the world’s greatest assets.  There’s a flag pattern on the chart, and it could help corn break through key overhead HSR at about $5.50.
  23.  Of all the assets that seem to be revving their “price grid engines”, junior gold stocks seem most eager to race higher.  Please click here now.  You are looking at the 60 minute chart for GDXJ.  Note the beautiful up channel and the breakout from a mini-wedge pattern.   I don’t believe that gold stocks need QE or a higher gold price to move a lot higher from here.  Either of those things would simply be a bonus for junior gold stock investors. 
  24. These stocks appear to be rising on short-covering by hedge funds, lower oil prices, and a gold price that seems very stable at these levels.  The entire mood of junior gold stock investors is slowing changing, from negative to positive!

Thanks!

Cheers

St

 

 

Stewart Thomson

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