Friday, September 4, 2009

The Potential Retest of Recent Highs; Dennis Gartman Scratching Head on Gold

I should of posted this in its own post but in the comments section Wednesday evening on the "gold breakout" post I wrote

My thought process would we would have a rally to create a double top after this "massive selloff" and then if that double top holds, the greater move down begins. We shall see how it works out. But I'd like to see S&P 980 first before that scenario plays out since it would mess with the most number of people - a quick trip to below S&P 980 would freak many out, and cause longs to throw in the towel, than a reversal back up to S&P 1030 would have everyone scrambling for long exposure and kicking themselves for not just buying the dip again, and then we could have a rip roaring selloff from there once everyone is comfortable.

Ok that's how I scripted it anyhow - what really happens is a guess :) S&P 980 is a key area.

S&P 980 did not hit, we only fell to 990 and now are doing the retrace back up. Volume is light today so very hard to read anything but prices are prices. The S&P 500 peaked around 1040 so bears would want to see a move to the 1030s and then a failure; this would lay the groundwork for a "double top" - we shall see if it works out like that.

Bulls will want to see new highs created of course. Thus far Fibonnaci has done a good job of turning back both China [Aug 15, 2009: Fibonnaci Stops Rally in China?] and the U.S. [Aug 5, 2009: Fibonnaci Calls: The 38.2% Retrace is Approaching] but unlike China the "massive selloff" in the States has been a very benign 3-4%ish.

Hard to make any directional bets as we've once again entered a white noise area - between S&P 980 and 1040. We are churning around and grinding but I don't see any big movements until we exit this 60 point roadblock - maybe sideways movement for now. With no "feel" for the tape (we could fall 20 S&P points or rise 20 S&P points just as easy) I'm retrenching, hedging, and waiting. Each white noise area for half a year has simply been a resting stop before the next move up, so we'll see if that continues. Today was the first non "sell the news" reaction we've had in the past week, but going back full circle - who exactly is out there trading today aside from the retail investors and the quant shops is beyond me.

Until this S&P 980 is broken to the downside, it is very difficult to get too bearish on things other than for short term forays as we enjoyed the first half of this week.


Someone asked in comments yesterday why I was not chasing into gold after the breakout over $970. Two reasons - #1 we are having a great year so I don't need to chase into every opportunity, and #2 there is only about 3% between where gold broke out from (over $970) and a similar retest of a double top with February 2009 highs (under $1010). With the jobs report pending I didn't see a reason to bother taking on any risk with gold ahead of a market moving event for a few percent reward. I am not sure what the move in gold is "about" at this time; as it came out of the blue.

Dennis Gartman is similarly confused -

"It is a very weird week when you see gold going up and the bond market rallying," Gartman told "Squawk Box," adding that one cannot have a "warm and fuzzy feeling" when one sees it.

That said, silver continues to act better than gold, and was up another 6% yesterday ... it has (unlike gold) broken out over yearly highs, and I am not too happy I did not get on that train after mentioning it early this week. [Silver Perking Up]

As I watched Marc Faber yesterday and his comments about "as the situation in the real economy gets worse and worse, that means more and more money printing and markets can go up - the worse the economy the more the market can go up on money printing" it made me think that John Paulson is listening to Marc Faber. [May 16, 2009: John Paulson Continues to Pile Into Gold] [Mar 17, 2009: John Paulson Joins David Einhorn as Gold Bug with Stake in AngloGold Ashanti (AU)]

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