Gold, Gold, Gone

I do not disagree with the premises of higher gold prices in the long term due to the enormous liquidity injection from the Fed. But as a trader, one must trade according to the near term trend. The near term trend for gold is down, and therefore I am bearish on gold in the near term. As the chart below shows gold most likely will not see major support until it reached the 835 level, or even down to the 800 level. When fears return to the equity market, gold could become a safe haven play again and that might give some near term price supports. But in order for the price of gold to move above the 1000 mark and beyond, the inflation picture has to come into play. Inflation will not return until the recession has ended and the recovery phase is well underway. From the latest statistics, the contraction of the US economy has slowed, but the contraction has not stopped. This imply the recession has not ended.

Another Look At Gold & Oil

The market did another pullback today but nothing warrant me to change my previous assessment about the market. Therefore, I thought I use this opportunity to take another look at gold and oil.

The Gold

Gold did a turn around going from targeting the 1000 mark to reversing back down toward the low 800 level. Since it reached near the 970 in mid March, it has reversed and dipped below the 50 SMA. Just a few days ago, it came close to testing the 200 SMA for support. The recent price actions have established a lower high and lower low, thus forming a down trend. From the gold continuous contract daily chart, a downward price channel can be drawn that point to a support near the 800 level. Unless the recent bounce off the 200 SMA re-establish a new higher high that can turn into a new rising trend, I will continue to watch it for lower prices.



A similar downward price channel is also being formed on the ETF GLD daily candlestick chart. This price channel points to support near the 80 level.



For those that are interested in playing the downside on gold using ETF without shorting the GLD, you might want to conside trading the GLL. This is the ultra short ETF on gold. This is a leveraged ETF, like all other leveraged ETFs, they are for short term trading only. Do not hold these ETFs too long. The volume on the GLL is relatively low comparing to the GLD, so watch the spread.



The Oil

The oil continuous contract was forming a rounded bottom until the last week or so. The rounded bottom has transformed into a cup & handle pattern with a measured move that could put the price in the 70s.



For the ETF, USO, an inverted head & shoulder pattern is being formed. The measured move from this H&S pattern could put the price in the 45 range.



The projected price levels from these charts are pending on the completion of their respective price pattern and breaking out from it. I have not identify what might trigger the crude prices to move to these levels. For now, I'm just monitoring it to see if this scenario will play itself out. Until then, I'm not initiating any trade on USO under this scenario, but that doesn't mean I won't be trading USO under other technical guidance. In the near term, I still believe oil will be trading in the 45-55 range.

Where Are We?

After the market made more than 20% gain in the last four weeks, a pullback is not unusual. But with constant reminder from the talking heads that this rally is a bear market rally, fears get triggered whenever a pullback comes along. But if some key levels are being monitored, then one doesn't have to fear the pullback. Instead, one can be prepare to take advantage of the pullback when it occurs. So where are we?

The market is still in the rally mode until it has violated key support levels. Click on the following charts for a larger image to view those key support levels.







As I have mentioned before, I will tighten up my stops on my longs here and won't be aggressive on setting up new longs until after the key supports have been tested and held. I will wait until supports are broken and confirmed with negative momentum before I go short.

Where is gold now?

Since my last post on gold, it has made a turn to the downside. The chart for gold's continuous contract displays lower high and lower low, and this is a signature of a down trend. It is trying to find support from the 200 SMA. For the ETF, GLD, it is bouncing off the 200 SMA with a long shadow inverted hammer candle. If you are considering on trading gold on the short side via ETF, then you might take a look at the GLL. It is an ultra short on gold. Be careful on these leveraged ETF, they are for trading purposes only and not for long term holding.








What about oil?

Although oil has retreated back below $50 a barrel after it has moved above $55 for a brief moment, the trend still pointing toward the $50 and above level. It could be establishing a trading range between 45-55 for the near term. The ETF, USO is trending within a rising price channel with a near term top range of 33-34. I would go long on the USO whenever it bounces off the price channel's lower trendline for a swing trade.