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"Gold and crude oil often track each other especially in heavy market rallies. Now, however, we are seeing non-correlation in former sectors we could count on for accurate signals. In evaluating these markets, traders should keep in mind over-riding factors causing larger moves. For example, right now crude oil is rocketing higher as gold follows with a timid rally. Everything eventually peaks and corrects but June, 2008 crude oil futures, despite this week’s large rally, remains in a three wave telling us there is more buying to come. Gold recently corrected near $850 on our forecast with a return to a high of $890 today. Gold is rallying in a wave three too, but with mild vigor. Let’s look at the charts to see where we’ve been, where we are now and where we might go." – Traderrog
Gold Miners Index (GDX) is our favorite shares indicator.
Gold the metal and its shares track each other but not always on the exact time table. Today we see a positive price almost perfectly upon the 200 day average after being below it. Volume is up and the PMO (momentum indicator lower box) has based and perked-up. This is not the time of year for a positive gold shares rally. Note the trading action during last May and June of 2007. In that cycle, GDX was gradually selling with one nasty dip lower in mid-August. We’ve noticed The Sell-in-May-And-Go-Away spring cycle has not been permitted to arrive as the PPT Plunge Protection team keeps propping and manipulating major share indexes to support our credit debacle (possibly preventing something much worse) and to make politicians appear better for presidential election in November. Precious metals’ 2008 enemy for growth is intervention in the major markets including the selling of gold. With each fiddling event, however, it’s moredifficult for PPT interventionists to achieve their aims. We sense, that by fall this game will fail.
Electronic Crude Oil June, 2008 Weekly Futures In Three Wave Bust-Out
Daily Crude Oil On 5-8-08 At $123.64 Races Higher. Note $85-$100 Channel Base.
Oil has a lot of technical running room for higher prices in rally waves 3, 4, and 5 as well as buying pressures from momentum (PMO) lower box. Oil this Friday morning is $125.40 for June futures.
Weekly June, 2008 Gold Futures 5-9-08 Pre-Open
Weekly June, 2008 gold futures show us interesting divergence with rising price and selling pressures on histogram bars (see lower box). Gold selling declined for five full waves lower and settled near $850, on our forecast. We think the floor of $850 is in and that for now gold trades sideways in May, June, July and August just like in 2007. Is more selling possible beneath $850? Yes, it is but that seems highly unlikely in our view with grain and oil in major 2008 rallies. Our point in this discussion is not only are we seeing non-correlation comparing gold and oil but we see further divergence from signals within individual charts (above). This makes analysts’ work quite difficult as markets and their signals are not behaving normally.
How Can We Manage These Diverging Markets?
"In our view, computer-driven faster markets, PPT intervention, growing inflation and recession coupled with extraordinary credit disruptions have produced more questions than answers. To stay on track with our trading, we have to stick with the technicals and trade shorter term, or endure some nasty draw-downs, that for the most part, is unacceptable for most traders and investors." - Traderrog
Here Are Some Tips For Market Trading Control
Start with a key list of fundamentals and use charts moving from the longest term to shortest term.
Today’s fundamentals would include: (1) a falling dollar, (2) political intervention to prop stock indexes and sell gold, (3) rabid inflation for consumers, businesses and all mining operations, (4) a non-announced condition of worsening credit-cash in global investment banks, (5) a totally destructive consumer component as negative housing, employment, credit, and autos move badly the wrong way.
Please notice the analysts, Federal Reserve, and some intelligent media keep repeating that the answer to corrective measures would be housing. Housing cannot correct until the used, owner-occupied dwellings are heavily marked down in price and mammoth for sale inventories are washed out of the system. Consumers are far from biting the house price bullet so things will drag on for 3-5 years causing a deeper recession finally sinking into a depression. We think the world population can suffer through a depression. What concerns us is the potential for upheavals in global war, government intervention and domestic insurrection. This is not your momma’s quiet, behaved 1930’s. The millions of spoiled brats in the USA are not going to sit still. We expect riots, major crime and broken families. We hope we are totally wrong but the signs and signals abound if you look.
Disrupted Unusual Markets Require Increased Caution
Crude oil and associated energy markets are creating inflation on top of the massive dollar printing inflation-dilution running at a rate exceeding 15% according to some analysts. All of sudden, Goldman’s wild forecast of $150 to $200 oil is seemingly realistic. We had forecast oil at $120 to $130 for the last quarter of 2008 and thought at the time this was quite bold. Now, we are nearly there as oil is up $2 at 9 AM this Friday morning and could easily close near $127 today; and perhaps even closer to that $130. (Editor’s Note: Oil sold back to $125 in later morning and gold retreated with it).
There is no question oil is pulling-up gold and we got news of an HUI breakout being imminent. It appears the cycles and time for spring were off-base and off-dates. We have a recommended gold futures trade open this morning and though nearly stopped out earlier the point and figure charts are telling us a gold high could be $930 in this current rally. A full technical move would be $965.
We think the current gold rally is a weaker spring counter-bounce after the first quarter’s larger rally and subsequent corrective selling. These kinds of moves are not as strong the first longer January-March rally usually lasting several weeks. Normally, they are tradable and we are making the effort.
The interesting market trading to observe will be during the late August to November 15 gold and silver rally, normally the year’s best. On the one side we have stocks’ election intervention with gold selling by the bullion banks and on the other in this tug-of-war we have inflation, fear, recession, and a flight to precious metals for protection of assets and hopefully some gain.
Consumers, their property, employment, credit, housing, autos, savings, and their future are in disarray, or negative. These folks are the engine supposed to be pulling the economic train. Right now, although not acknowledged by Wall Street, government, or the media, we do not have anything helping our economy except an ocean of Wall Street inflative cash sloshing around being spent in all the wrong places.
No matter who is elected this fall in the US, the die is cast. We get recession first, then depression followed by civil unrest, higher taxes and god forbid, global war originating in the Middle East.
Spring Selling Cycle Delayed And Disrupted
Watch for new rallies in most all markets in late May and early June. Sometime in 2008, the bloom goes off the rose and the off-schedule, nasty “Sell-in-May-And-Go-Away” arrives. We forecast a -24% haircut in most stock shares including precious metals. The only action to prevent the selling is our stunningly time-worthy Plunge Protection Team who has failed twice in April to prop the shares. Will they win during the next push-‘em-up event? Soon we’ll know. In the next selling instance, presuming the PPT fails, the baby gets tossed with the gray water. Traders should prepare and act appropriately selling into strength those shares they prefer to be out of and wait for a later summer bottom to buy in again. Some smart traders are all in cash right now planning to buy heavily after the next lower base has been secured. Others will simply hold and ride out the storm clearly understanding what lies ahead. Still others will sell half and keep half. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management.
Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy. - Traderrog
Roger Wiegand
Editor Trader Tracks Newsletter
& The Rog Blog at webeatthestreet.com
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Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares and futures- commodities trading with specifics for individual trades. See www.webeatthestreet.com for more information.
Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a modestly priced trial subscription 718-457-1426 Monday through Friday, 9:30am to 5pm or, e-mail Claudio at cbassi@miningstocks.com
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