Wednesday, 22 October 2014

Can palladium get some help from its friends?

Palladium, the recent darling of the precious metals sector, is looking like it could use a little help from its friends.

How is its friend the U.S. dollar doing by way of the USD bullish fund UUP?

Hmmm... Doesn't look like that friend is of much help at the moment.

Monday, 20 October 2014

A meditation on the yen

Gold in recent years appears to have a strong correlation to the yen (weak yen = weak gold). Correlations can change, but for now, it is what it is.

When the yen broke down from the blue uptrend line earlier this year, currency traders took note. That key breakdown has been strongly back-tested on the recent rise.

Wednesday, 15 October 2014

A meditation on the Euro

Gold and the euro have had a strong correlation for many years. As the euro rose, gold tended in general to rise with it. As the euro fell, gold tended in general to fall in sympathy. The relationship makes sense in that a strong euro suggests a weaker U.S. dollar, and vice versa.

The correlation of gold lately has been strongest with the Japanese yen (weak yen = weak gold), but the long-running correlation with the Euro appears to still be in play.

As such, it is worth contemplating a long-term chart of the Euro:

Earlier this year, the euro made breakdown of its long-term support line -- an earthquake in currency terms. That breakdown appears to be be in the process of being strongly back-tested.

If the euro can manage to close above its broken support line with conviction, then gold has a chance to stabilize, if not bottom.  The jury is out on whether the euro can find sustained strength going forward.

The headwind for a stronger euro is that Europe appears to be an unfolding economic disaster, as deflation tightens its icy grip. And a broken 15-year support line is not something to be taken lightly.

Tuesday, 14 October 2014

A meditation on gold

More often than realized, the stock markets act like an organic, living system. The stock markets are after all, the product of the actions of millions of people.

Fibonacci retracements -- the mathematic roots of which are found throughout nature -- are used extensively by investors in the market precisely because the markets often respond to an apparent hidden natural order.

Markets often move in legs or waves up and down. And these waves or legs will often share uncannily similar aspects or features for those who care to look closely. Such waves can sometimes be compared to ripples in a pond.

Some of the great minds in physics and mathematics have noted that the stock markets appear to be fractal on many levels. Put very simply, a fractal is a natural repeating pattern, not necessarily exact. When referring to the stock market, I prefer to call them repeating behaviours.

Consider the following chart not as a price chart, but rather as a meditation -- perhaps a much needed one for investors struggling to make sense of the recent confounding action in the precious metals markets.

It is a meditation for contemplating a possible fractal or what I call an "echo formation" in the gold ETF GLD, my proxy for the gold action:

One can never have complete certainty that a possible fractal is active, or will play out as anticipated. There are no guarantees in the markets.

IF this fractal is active, it appears it is attempting to communicate a message.

Thursday, 9 October 2014

Roller coaster

I've resisted posting to the blog lately as I am working on refreshing my market models, my key priority. However, the wild action over the past days warrants comment.

To my eyes, the current moves in the dollar, the yen, gold, and the miners can be arguably described as likely strong back-tests of key breakouts or breakdowns. The volatility will likely only increase going forward, possibly becoming wild and virtually untradable at times. Pass the Tums.

During backtests, the pros who run hedge funds know an opening when they see one -- and often use such windows of opportunity to their full advantage to ruthlessly run the stops. These people are among the most aggressive on earth -- and they often won't stop a charge until the last drop of juice is squeezed from the orange. This may explain the big run up in the miners in particular on Wednesday (which appears to be reversing as I write well before the stock market close).

Possible backtests of apparently critical breakdowns:


(Note: the yen appears to be the key currency driver behind gold's weakness, much more so than the dollar. That's why keeping tabs on the yen is a worthwhile exercise.)



Monday, 6 October 2014

Gold takes a stand at a possible triple bottom

I'm writing well before the stock market close on Monday and gold is up several dollars, attempting valiantly to put in a triple bottom.

Gold's attempt at forming a triple bottom can be seen in the action of the gold ETF GLD and my proxy for the gold action:

As readers know, I have my doubts the triple bottom will hold, but I'll let the market decide. It doesn't listen to me anyway.

I've noted previously my market models are hinting that this precious metals bear market may end up having four legs down, instead of the three I had been anticipating.

What that means is I have to rebuild all my models to account for a possible fourth leg. It's a big job that is going to take some time. As such, I'm going to take a break from posting to the blog for a few weeks to clear my mind and concentrate on this key task of rebuilding my market models to account for this possibility of a fourth leg down.

IF this bear market is planning on a fourth leg down in time, its my view that the current (third) leg down may not be as extreme as many bears seem to be expecting. As such, bears may need to approach the current leg down with guarded enthusiasm.