 Gold & Currency. Powerful Trendline Action
Stewart Thomson
email: s2p3t4@sympatico.ca
Sep 30, 2009
1. Mid Trading Week Day. The
US dollar has broken upside from some key down trendlines (DTLs).
I urged readers to buy the USD with a small amount of risk capital
into the recent lows on weakness. The US currency has now surged
to 77 on the index and is attempting to establish an uptrend
channel on the intraday charts. There have been several previous
attempts over the past 3 months to do the same thing, but all
have failed. As of this morning, the latest attempt is also failing,
although only on the intraday charts. Here's a look at one key
upside break on a longer term chart. This is against the Canadian
dollar via the USD/CAD ratio chart:
2. Notice the RSI, the relative
strength. I've drawn 3 blue arrows at the lows. Contrast that
with price. In fact, look at all the blue arrows flashing either
buy or near-buy signals across a multitude of technical indicators,
while price has moved lower. Most important, notice the slight
upside penetration of the major red supply line.
3. What does this mean? Answer:
It means you want to get ready to start accumulating the Canadian
currency should it begin an intermediate stage decline. Should
the US dollar begin to strengthen against the resource currencies,
and against gold, you must use that opportunity to buy gold and
the resource currencies into that weakness. Don't guess the extent
of the weakness, just buy into it.
4. I want to be net long the
resource currencies with an up to 70% allocation to the long
side, and up to 30% on the short side. 70% long built into price
weakness, 30% short built into price strength.
5. There are some practical
considerations. For instance, if you live in America, your home
currency is the US dollar, so Canada is a lot closer to the USA
than Australia is. One approach is to maintain some physical
gold in Canada for safekeeping, along with some gold stocks,
while focusing your currency bets on the Aussie dollar. Today
the Aussie has made a new high and I woke up with my Aussie cash
register jingling.
6. Many forex contracts are
structured as USD/CAD and AUD/USD, meaning if you want to be
long the CAD against the USD, you actually need to short the
USD against the CAD on that forex contract. That may not be something
everyone is comfortable doing, and shorting any item brings unlimited
total risk. The AUD/USD is set up so the investor doesn't have
to short anything, you simply buy the contract. You go long.
7. The ETFs FXC-NYSE
and FXA-NYSE also allow you to be long either currency, both
against the USD.
8. If you live in Australia
or Canada, your home currency is already a resource currency,
so you are already likely net long against the USD via many assets
held in your home currency.
9. It's critical you focus
on today's real world market tactics, not tomorrow's asset allocation
fantasies. Look at the USD/CAD. You can see the upside breakout
by the USD, taking out a 2 year down trendline. Use this upside
breakout to book profit on long USD positions, in stages, into
USD strength. And begin buying CAD and AUD. This is the exact
opposite of what nearly 100% of chartists will tell you. I sell
only strength. No upside chart breakout is bought. All are sold.
Profits are booked on long positions into strength. I was a buyer
in to the USD/CAD 1.06 lows, a seller into the 1.09 highs on
Friday, and a seller near the 1.10 area highs on Tuesday. Yesterday
I was a buyer in the 1.08 area into weakness, and into the 1.07
area this morning.
10. Selling a major trendline
upside breakout is one of the juiciest profits you can book,
as the technicians pile in on the long side in a street fight
to get on board. By dividing your long position into an inner
core, outer core, and trading position, you can feel very confident
that you're in complete control of the situation. You book profit
on the trading position, but hold the core position for the bigger
move indicated by the major trendline breakout.
11. Some of you may be a little
confused. You look at the USD/CAD chart and say, "but this
is a major upside breakout, shouldn't I be buying the USD here
against the Canadian dollar?" Answer: You should have already
bought it, systematically, into the massive weakness from 1.30
to 1.06. Maybe this is a legitimate upside USD breakout, maybe
it isn't. Maybe the correction in gold has a long ways to go,
maybe it's all over. You can't know the answer. Seeking it will
harm you. Focus on a systematic response to price action.
12. Looking at the two year
Australian dollar (AUD) chart, a breakdown below the 85.00 area
would break it's major uptrendline. Such break could signal the
beginning of an intermediate downtrend move against a rising
US dollar. Regardless, the correct tactics are to BUY aud into
any such trendline penetration. In my case, that buying to initiate
longs. If you live in Australia, it may be to book profit on
shorts you built into this massive strength. Notice the key red
horizontal support at the 85 level.
13. If you booked no profits
on the $120 move in gold from 905 to 1025, and bought no US dollars
on the multi-month tanking, you should not be trying to buy the
USD on any "pop" during the day, nor bailing on gold,
especially with large monies. Don't compound past tactical errors
with more errors. You should be a buyer of gold here on weakness,
and a booker of profit in the USD here on strength. Not the other
way round.
14. Silver fell about $2 from
the 17.70 dec futures high set only 2 weeks ago. Gold has fallen
$40 from it's $1025 area high. In percentage terms, silver has
fallen about 11%, gold about 4%. Don't focus on how high silver
could go relative to gold. Focus on the fact it has tiny odds
of going to zero. And focus on the fact it just dropped 11%.
Did you buy any? I did. Now it has soared 75 cents off the lows.
15. Looking at the shorter
term picture for gold, it has broken out of a symmetrical triangle,
and has pulled back towards the apex of that triangle. If you
are a technical trader, the opportunities don't get much better
than what you are looking at right now. For myself, I play gold
in multiple hundred dollar moves, so the current $40 drop in
gold has seen some modest buying, but if it fails here that buying
would only accelerate. I have no "stoplosses". I call
them "takelosses". Stoplosses are an attempt to hold
a whale with a fishing line. Reducing the size of your trade
is your first step to be used long before you play with stoplosses.
I'm hearing a thousand different numbers for where gold is going,
but very little about whether people are actually buying or selling.
There seems to be two main camps: "if it breaks out over
$1030 I'll buy" and "if we get a substantial correction,
I'll buy".
16. What about "gold is
down $40 and silver is down two dollars an ounce, so I'll buy
a little here?" How about "the US dollar has rallied
a bit so I'll sell a bit"? Unfortunately, those are empty
campgrounds. And now price has left that opportunity behind.
17. Oil fell a staggering eleven
dollars a barrel from the recent high at 76 just a month ago.
As soon as I mention the word "oil", investors immediately
think, "where is that going, it should go higher, but what
if the stock market sells off, isn't oil moving with the stock
market?" Oil fell almost 15% from the $76 level.
18. If you can't bring yourself
to buy one dollar of oil after a fifteen dollar a barrel correction,
should you really be playing the oil market? I believe the firm
answer is: No. Of course I was a buyer of oil last week. I'm
a buyer of oil every dollar down. All the way to Zero. Period.
By maintaining a strategic 70% long to 30% short allocation of
risk capital to your oil trading, you would have solidly booked
profit into last week's oil weakness. And built long core and
trading positions, some for free, with profits from the booked
shorts!
19. Look at the chart below
for oil. Notice I have only a few blue buy arrows. Many technical
indicators are ambivalent or negative. To trade as a professional,
use such action to tweak down the amount of risk capital you
allocate to the trade. Do not use such action to make outright
buy or sell decisions against "Queen Price". If the
price of oil is down, you are a buyer. If the technical indicators
are weak, you may be a slightly lighter buyer, but you don't
buy zero oil after an $11 hit.
Oil is in a price range of
about $59 to $76. The technicians will tell you that if 59 fails
oil could fall to about 42, but if 76 is taken out, oil could
rise to 93. I agree with those technicians, but in terms of tactics,
I would suggest you want to be a buyer of oil into the price
of 59 and a bigger buyer below there. On the other hand, if oil
were to turn around before hitting 59 and rise to 93, how would
you feel with zero oil? Buy into the current weakness. If there
is further weakness, buy more. Always trade in dollar amounts
that feel smaller, literally, than seems rational. This morning
oil has already rallied three dollars from the lows at 65! I'm
already ringing the energy cash register at 5am as I write this,
while most analysts are still trying to get out of bed. You decide:
Rise and shine to your alarm clock, or rise to the sound of your
ringing cash register. Which is the better way to wake up?
20. I believe the long/short
hedge funds make an error with their attempt to carry 50% short
positions in the commodity markets. Most go well beyond that
at times, attempting to heavily short commodities when they believe
are overvalued. The low risk nature of commodities is a gift
to you. Take it and use it! Investors and fund managers confuse
volatility risk with the risk of going off the board. Commodities
have near-zero risk of going off the board, but extreme loss-to-you
risk if you use leverage. By focusing on the long side of commodities
with little or zero leverage, you are cutting your risk of total
loss. Drastically.
21. The stock market right
now is perhaps the best illustration of why investors must move
in multiple pre-set stages of action, as opposed to price plopping
with the idea you will be rewarded in time by their predicted
prices. The new game seems to be an attempt to pull in some of
the $3 trillion sitting in money market funds. The theme seems
to be, "Come on in, everything is fixed, the insiders have
decided to let you have large amounts of their stock at a minor
50%-200% booked profit for them." The fish are biting on
the insider's fishing pole hooks, but there's no frenzy yet.
22. On the "sell all my
gold at the market, I don't need any, here in my insane asylum"
front, comes this tidbit from debka news: "The Pentagon
has brought forward to December 2009 the target-date for producing
the first 15-ton super bunker-buster bombs (GBU-57A/B) Massive
Ordinance Penetrator, which can reach a depth of 60.09 meters
underground before exploding. DEBKA file's military sources
report that top defense agencies and air force units are also
working against the clock to adapt the bay of a B2a Stealth bomber
for carrying and delivering the bomb."
23. Apparently the ready date
has been accelerated forwards by an astonishing 3 years and North
Korea is also a potential target. Debka says production will
be about 10 of these bombs. Keep in mind that most every major
American war has occurred under a Democrat administration. (You
may want to hold off for a bit on those "sell it all at
the market!" gold orders).
24. Intermediate currency trends
tend to be longer in time than stock market trends. Intermediate
and major trendline penetrations in these items can carry substantial
implications. This morning as I send this off the US dollar is
tanking, the resource currencies are in astroblast mode, gold
is back over $1000, silver is soaring, as is oil. This price
action could continue straight to gold $1200, or it could end
right now, nobody knows. Are you responding to this morning's
prices? Or are you chasing them? Use trendlines to build price
channels. You have to accept that most trendlines and channels
"fail" very quickly. They don't really fail; price
simply changes direction often, and new trendlines and channels
must be drawn. Immediately, not a month later. The amateur chartist
wants to see long price moves with beautiful trend channels.
That's not market reality. Trendlines are critical to technical
analysis, but they must be used as a tool to facilitate your
systematic buying of weakness and selling of strength. The drawing
of trendlines is an ongoing process, not a one time event. Amateur
investors get demoralized and think price is rarely in a trend
channel. Wrong! It's always in a channel, you just need the tools
to identify it! If you draw the lines professionally and consistently,
and don't try to out-think them, the trend channels will provide
you with an exact chart picture of market direction. Use them
to apply risk capital in and out of the market, buying and selling
consistently!
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Sep 30, 2009
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email for questions: s2p3t4@sympatico.ca
email to request the free reports: freereport1@bell.net
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