Stewart Thomson: Key Gold Breakout

Submitted by Stewart Thomson

Gold has risen above HSR (horizontal support & resistance) at $1675, and did so while bursting above a key short term trend line.  The arrival of the gold price at key HSR, in the $1630-$1650 area, was accompanied by rampant bearishness amongst most gold investors.  The Hulbert sentiment index for gold is currently at one of the lowest points in the history of the index.
The general sentiment for gold still appears to be very negative.  That’s great news for gold, because markets tend to rise strongly, on the biggest walls of worry!

Most gold timers that I keep an eye on, are still looking to short rallies, rather than buy declines.  I think they are making a serious technical error with this strategy.  Gold is the lowest risk asset in the world.  It’s arguably the “ultimate asset”.  There are not many really good shorting opportunities in a gold bull market.

 

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1.   The American government credit card limit, aka the debt ceiling, was just increased.  Politicians around the world are loudly cheering this supposedly great news.

2.   Early this morning, “Queen Gold” also celebrated this event, by taking out a key downtrend line on the daily chart.

3.   For a closer look at the celebration, please click here now.

4.   You can see that gold has risen above HSR (horizontal support & resistance) at $1675, and did so while bursting above a key short term trend line.

5.   The bond market is also showing signs of life here, and that should help gold move higher.

6.   Please click here now.  That’s the daily bond chart, and there is a superb technical non-confirmation in play.  I use the 14,7,7 Stochastics oscillator, to provide traders with a “trend changing alarm clock”.

7.   While the US T-bond kept dropping in price, my Stochastics oscillator began to move higher.  By early January, I suspected that bonds were signalling that gold was on the verge of starting a major move to the upside.

8.    The arrival of the gold price at key HSR, in the $1630-$1650 area, was accompanied by rampant bearishness amongst most gold investors.

9.   To view the extent of the “negative sentiment cloud” that enveloped most gold timers at this key turning point, please click here now.  You are looking at the Hulbert sentiment index for gold.  It’s currently at one of the lowest points in the history of the index.

10.            Many timers bailed on their short positions, as gold began to rally strongly, but the general sentiment still appears to be very negative.  That’s great news for gold, because markets tend to rise strongly, on the biggest walls of worry!

11.            Most timers that I keep an eye on, are still looking to short rallies, rather than buy declines.  I think they are making a serious technical error with this strategy.

12.            Gold is the lowest risk asset in the world.  It’s arguably the “ultimate asset”.  There are not many really good shorting opportunities in a gold bull market.

13.            Most shorting accounts are underwater, and are probably set to sink a lot deeper, with today’s key breakout in play.

14.            Please click here now.  That’s the same Hulbert chart, but I’d like you to look at the highlighting I’ve done, at the top of the chart.

15.            There’s an enormous inverse head & shoulders pattern in play, with the neckline at $1800, and an upside target of at least $2100.

16.            If the financial crisis is accelerating, which I believe it is, then the price action of gold could become even more volatile than it is now.  That doesn’t change the fact that this is a powerful bull market.

17.            This probably isn’t a good time to be shorting gold in size, unless you enjoy booking losses in size.  Gold now appears to be making a “steady as she goes” move, towards the neckline of this key technical pattern.

18.            On the other hand, global stock markets are becoming a little extended, and nimble gamblers may be able to extract some profits from “Mr. Market”, on the short side.

19.            Please click here now.  That’s the FXI-nyse, which is essentially the “Chinese Dow”.  You can double-click on the chart to fully expand it.

20.            The Chinese stock market appears to be getting set to begin a trending move higher, but I fear that too many amateur investors are rushing in now.

21.            Rather than a trending move higher, the Chinese market could surprise investors, and take a nasty fall, while gold climbs a powerful wall of worry.  I’ve highlighted buy-side HSR at $38.06 on this chart.  That’s where trend-oriented investors could enter some light buy orders.  Patience is a virtue, particularly in a super-crisis.

22.            Ironically, natural gas lead gold out of the down trend that has dominated the price action of most commodities.  “Sir Natty” broke out to the upside yesterday, a day earlier than gold did.  To view the breakout, please click here now.

23.            Natural gas is now in the process of consolidating its breakout. I expect gold could do the same thing, perhaps trading in a range of $1668-$1680 for a day or two, before blasting higher!

24.            What about gold stocks? Please click here now.  That’s the weekly chart of GDX.  For decent trading plays, I look for a price decline, negative sentiment, and a crossover buy signal on the 4,8,9 series of MACD, and that’s in play now.  I think this move could reach a price area of $51, which would be good news for many individual gold stocks!

 

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Stewart Thomson

Graceland Updates