Following up on gold and oil

December 21, 20113 Comments

Gold Outlook

 A substantial shift in the technical profile of gold occurred recently. The two-year trend that I have noted on a few occasions for the metal broke in mid-December. The 200 day MA was broken. As me mentioned on this blog, I sold my gold at $1800/oz. Back when I sold it, I felt that it would fall to about $1640-$1680 (near the trendline) and bounce to create a buying opportunity. I even went on BNN TV and suggested the “buy point” was approaching when it was around $1700. Here we see why we must follow a trading strategy, with rules built in such as “buy on the bounce”. When gold failed to bounce and then broke the supporting trendline, I avoided buying back in. Gold now has support at $1540, then around $1480. I will not reenter bullion until it proves that a bounce from one of those levels is sustainable.

 Jason Goepfert, proprietor of www.sentimentrader.com noted recently that a number of sentiment indicators are not yet deep enough into their respective “buy-zones” to suggest that we’ve seen the last of gold’s potential downside. Jason notes that 60% of Commodity Trading Advisors remain bullish on gold – it’s usually anywhere from 20% – 50% bulls before a significant upside move occurs. Brokerage firm analysts and newsletter writers have also been reducing their bullish bias towards the metal. These fine folks are  great contrarian indicators, but they are not yet bearish enough to warrant a turnaround for gold according to sentimentrader’s statistics.

My two cents worth: There will likely be a great opportunity for entering gold again in the near future, but it’s probably not here yet.

Oil

 I posted a bullish outlook for oil in the fall on this blog, and the chart below contains the 3 upside target levels I suggested at that time ($95, $104, $108). My first and second targets were met.  Interestingly, they became the support/resistance levels for the trading range for oil up until recently. You will see the brief breach of support at around $95 circled on the chart – this occured a week ago. Earlier this week, oil moved back above the $95 level. Click on the chart for a better view.

This kind of rapid turnaround seems to be happening a lot lately. For example, over the fall the S&P 500 was trading between 1215 to 1265, but then fell below the 1215 support level at the end of November – circled.  Thereafter, the S&P staged an amazing recovery to once again trade between 1215 – 1265. Uncanny. So, it might just be that we see crude get back to $104 again before technical resistance come in. From there, I will not be surprised to see crude remain stuck between $95 support and $104 resistance. 

 

3 Comments

  • Hello Keith,

    Enjoy your blogs and tweets. I am curious whether, since the above blog of 21 Deceember, it is possible that a down-facing penant is in gold is becoming increasingly likely (since September and with decreasing volumes). Looks like decreasingly lower highs and higher lows becoming a slight penant shape. (I am going by CME $GOLD here) I am still learning the basics of TA and enjoyed your book, but I have LOTS to learn. So your thoughts would be greatly appreciated. Peter

    Reply
    • Hey Peter
      I dont see where you are getting a penant formation–penants usually occur during trends and the trend was broken on gold.
      The one positive for gold lately has been its mvement through $1610, which was its last s/t peak-that coincides with former support (which is now resistance) at the same level. Gold is worth watching for a pullback and rally from a level higher than its last low ($1540-ish). If it corrects to a level above $1540 and then rallies, its worth consideration of a trade.

      Reply

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