This guy seems pretty good.
Tipping Points in Major Markets Approach
By Roger Wiegand
November 16, 2006
www.tradertracks.com
“Political rubber band market stretching in precious metals, energy, stock indexes, and currencies is over. Pre-election market manipulation correctly positioned the incumbents for a win. Other factors, primarily the forever war, seated new winners instead. Next the rubber band viciously snaps back to the mean as markets correct to their previous prices before being so artificially bent out of shape.”-Traderrog
The dollar was weak and had to be pumped-up through Euroland Central Banks’ selling Euros creating a dollar rally. The dollar rally put selling pressure on gold and silver. Further selling pressure was applied to gold by a few thousand specially-timed futures shorts in Tokyo. Silver was left to its own devices as the market massagers knew it would follow gold in the selling by itself. This is why silver later fooled them and sold; but very little.
Base Metals Seek Normal Correction
Base metals represent industry, commerce, construction and housing. China and India have been scooping up all they could buy. These base metal markets as a percentage of growth versus the precious metals were the best place to be. Reversion to the mean is only normal and price has been pressured lower but smaller Chinese imports to cool inflation. In the United States housing is skidding badly with autos duplicating that downward pressure. The North American auto market seems to stay the same producing 16-17mm cars and trucks per year. Problem for the Big Three is their loss of share in this static market pie. Japan & Company with higher quality and lower legacy costs is out-competing America’s car builders. There is a lot of metal in those big American trucks and they are not selling.
Energy Correction is over and New Bull Market Begins
Crude oil Energy futures fell from $80 to $60 and for a little while even lower. These markets were reduced by thrifty consumers driving less to save on gas and some very lucky weather with a warm 2005-2006 winter, no interrupting hurricanes and some anxious crude oil sellers pumping their little hearts out to keep the goods moving and rake in that big cash per barrel. Just on the technicals crude oil should have corrected 6% to 12%. The other energy moving events worked as a collective group driving prices lower. Next, our Department of Energy drained the Strategic Petroleum Reserve providing instantly delivered product to post-Katrina starved refineries. A goodly percentage of Gulf facilities are permanently off-line and refiners in that area were short of feed stock. Now that votes are counted the empty oil reserve needs filling. However, politicos are in no rush to do it raising prices further as a consequence and angering voters. If the mammoth reserve re-fill is left to the first quarter of 2007, the newly elected political gang gets responsibility for those fuel price increases. The games continue.
Dow, S&P, Nasdaq Correction Delayed
Stock indexes if left to their own devices would have submitted at least a mild selling correction in September or October. Instead the Plunge Protection Team and its Political Wing of supporters guaranteed stocks would stay high for the vote and of course the annual Wall Street Bonuses. You gotta love a strategy when it pays you twice. We just cruised through several daily, weekly and monthly stock index charts and see a peaking, topping action with several tiny double tops. Will they crash? No, they should not but we expect that 6-10% overdue correction.
Commodities Up or Down?
We’ve just seen some very hefty reports telling us commodities have topped out and that game should be over. We disagree and forecast normal corrections in most of these markets to be followed by a resurgence of buying driven by inflation. Our predictive difficulty for this situation is quite a tangled nest of facts. On one hand China, India, and other markets shall continue using prodigious amounts of base metals. On the other hand a recession is imminent. Recessions mean less need for base metals as commerce is slowing down. So our dilemma is to forecast a mix of markets both buying and selling at the same time with stronger new trends sprinkled throughout.
China and India Producing New Homeland Consumers
One substantial and little reported event is the fact China and India are now home- growing their own large numbers of working consumers earning enough to begin buying this western stuff they produce. They are not only exporting wares overseas for cash but are selling these products to them selves. Estimates here are very difficult as these are brand new markets. A few years ago they did not exist.This kind of forecasting is not easy especially from Communist China.
Base Metals Normally Correct and Could Follow in Bull Market
Two of the base metals which had incredible buying pressures to the point of rationing were copper at $8,200 a ton and nickel (used for stainless steel) at nearly $32,000 a ton. Copper is trading this Tuesday morning on the London Metal Exchange (LME) at $6,830 per ton (cash) being off roughly -17% and nickel is $30,200 (cash) down less than copper at -6% off the high.
As traders we clearly understand these flying base metal markets could undergo a -50% correction from the highs and remain in longer term bull markets. We disagree with reports saying the commodities bull is over. We think it is being re-arranged a little bit and certain commodities within the 19 market grouping have yet to see their real hot markets. For 2007 we are forecasting three grains and cotton and coffee to make substantial long moves. Sugar was mentioned again after already enjoying a bullish run. In previous essays, we’ve mentioned that historically, commodity bull markets have lasted 13 to 17 years with most of them trending toward 16 years. This current event began in 2000-2001 so conceivably we could enjoy ten more years of great trading excitement.
So Where Does This Trading Take Gold and Silver?
A few analysts have tried to show a trading relationship between crude oil and gold. There are numerous charts demonstrating this with an off-and-on result. The argument states oil and gold tend to rally with inflation together. Often this is true but it is not consistent enough to pin your bucks on that trade. Another idea says selling index stocks will drive gold higher. Still one more and the best of lot we’ve seen is the inverse relationship between the U.S. Dollar and gold. Another we just read about suggests trading gold stocks versus the indicated trading action of a combination of the U.S. Dollar, Swiss Franc and Crude Oil which was advertised as providing a 57.68% win percentage. Interpretive complications on this idea seem too severe for our taste. Keep things simple and straightforward and avoid getting all tangled up in your trading underwear.
In our view, the more indicators or beans you throw into the trading pot the higher the chance for errors. We strongly prefer simple stuff that is time proven using three solid indicators to pin-point a rocketing sector market. This effort applies your trades to the best of the best on fundamentals and technicals. Fundamentals change in slow transition but technicals are better as the ultimate arbiter of choice, especially in short term trading time frames for entry and exit.
We know of a math genius who designs trading programs writing equations that would terrify Einstein. I studied one of these ideas spread over six pages and at the end was totally clueless as to what he was talking about. On our futures quote service we have long lists of neat tools you can superimpose over price charts. One guy wrote his own program and used 20 indicators on one chart. Answer: clear as mud. He probably could not even see the actual prices at this point. We learned about most of our trading tools and tactics from John Murphy who wrote the classic college text on technical analysis for futures trading. Most of his ideas apply to trading stocks as well. Keep it simple and find two or three indicators and make them work for your trading in conjunction with chart price patterns and fundamental-sector set-ups. We think you’ll have much better results with this solution.
Meanwhile back to gold and silver trends and trading
While commodities individually can rise or fall within the current longer term bull market, eventually most should sink in price as gold and silver rise farther and faster. Gold and silver remain in the same bullish framework with all other commodities today. We are saying as time cycles move ahead, precious metals will gain more ground faster as the others within this sector ebb and flow and finally diminish with outside influences.
A key and critical point states gold will rally during inflation or deflation. Inflation probably causes gold to accelerate faster but deflation will move gold too, as recessionary-depressionary fears create safe haven gold buying. Why is this? The real reason is gold’s price is actually static. The dollar is caving in due to dilution and over-printing. Gold is not going up-all the other stuff is going down making gold the trading star. The old example of that says one ounce of gold will always purchase a quality man’s suit remains unchanged. It was the same 50 years ago as it is today. This is a true lesson in values.
Silver follows gold but sometimes races ahead and leads gold in market trading. Since the silver market is so small, it takes less buying or selling to radically move silver’s prices. Both gold and silver stocks are sometimes preceded by bullion futures rallies. This bullion stop-and-go can be typically 14 days ahead or behind the PM stocks. Our result is confusion but keep in mind the leading indicators are usually the stocks showing early bullish moves first.
Weekly December Gold Futures Chart 7am 11-16-06
Weekly charts are normally the most informative for intermediate trends. Gold is trending sideways for now in a very mild correction. The daily chart, not shown has a diamond pattern which is bearish. This indicator plus the fast selling stochastics (light blue line trending lower in chart above) indicate selling pressure remains for the very short term; perhaps 2-3 days. The darker blue line is a moving average of the faster light blue line. Notice the basing pattern in October followed by the bullish rising line in November. If we only had one gold indicator this lower box with fast stochastics patterns would be our choice.
We think our worst case gold position would be $570 on the lower red line but our forecast is for a new low of $608 if more selling pressure is applied. On the other hand, gold is standing fast at the $620 support and resistance price which is bullish. It simply does not want to sell. Our price on this futures chart is $626.70 roughly +$4 above the support mean. We are expecting a current mild correction followed by a move to $640-$645. On this weekly chart, follow-on highs with support and resistance are $720-$740. We were hopeful of $850 this fall but cycle time is short and that higher price is more likely for April, 2007.
Weekly December 2006 Silver Futures at 7:18am 11-16-06
Silver has been moving ahead of gold with more strength and the chart patterns say this will continue. Our last futures silver price for this chart is $13.00 resistance with $13.50 to follow and $15.20 for a proposed top which silver achieved last May, 2006. Those Bollinger Bands are wrapping chart prices more tightly. Notice the smaller price corrections are staying farther above the red lower support line at $10.66. Contrast that with the gold chart showing lows at or near the lower red line more than once. In one case a gold low traded beneath the red line. This is clear evidence both are in bull markets with silver rallying faster.
Silver is now topping out in this wave set and could reach $13.50 before the final A-B-C corrective reversal. That correction is expected to be very mild and should support at $11.80 or higher in our forecast. The key overhead resistance which must be broken next for silver is $13.50 and $15.20. The latter being most important for the next major advance to higher silver prices headed toward $20. -Traderrog
Roger Wiegand is Editor of Trader Tracks a weekly newsletter recommending trades in gold, silver and energy providing entry and exit ideas.
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