| The Intermarket Report June 27, 2008 |
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| Written by Matt Caruso CMT | |
| Sunday, 29 June 2008 | |
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The Futures / Inter Market ReportTrading the World’s MarketsJune 27, 2008 Gold in rally mode after seasonal low – Update 1 copper’s June rallyI have an article which has been published in the July issue of Stocks & commodities magazine. It is entitled “How to hedge against a bear market”. Perhaps you may find it to be of interest.Gold’s glitter has dulled in the past 3 months as its price tumbled from over $1000 an ounce to less than $850 an ounce. However, in the larger scheme of things I view this to be a correction in an on going bull market. The job of every trader, in my opinion, is to first identify the trend. Secondly, the trader must enter that trend at the most opportune time. The best trades in regard to risk/reward are after a correction has occurred. Prices are already depressed and there is a large amount of upside potential if the trend persists. There a number of reasons to believe that the correction in gold has come to an end and we are now in the beginning of another leg up in this long term bull market. One mistake that people make when studying the market is that they do not pay much attention to time and rather solely on price. A bar chart is comprised of both time and price, and ignoring one of the two is a mistake in my opinion. The reason is that markets move in cycles. Just as the economy has a very dominant 4 year cycle, there are also many other cycles that are present in markets - although they may not always have such an important impact. One time cycle that I found to be dominant n Gold is an approximate 42 week cycle which can be viewed in figure 1. Looking at figure1, buying market weakness once 42 weeks has passed since the last gold low would have provided some spectacular entries and risk/reward trades. Although looking at this chart may leave you believing that we have found a fail proof way to riches, be aware that cycles have a tendency to vary over time. After years of trying employ them in my trading I have come to believe that they need to be watch closely because as you see in figure 1, they can be very informative, but they need to be confirmed by other indicators because of their tendency to lose their effectiveness at times.
Figure 1 chart by Metastock Two other important tools available to the trader are the position of other traders as well their psychology. Figure 2 displays the nest position of small speculators in gold. As we have studied on this site before, small speculators have the unfortunate ability to be bearish at bottoms and bullish at tops. As you can see in figure 2, small speculators were bearish at all of the 42 week cycles lows outlined with red vertical lines. As well, the psychology of market participants has been bearish at all 42 week cycle bottoms except in late 05’. All of these occurrences are highlighted with orange circle sin figure 2. It becomes apparent to me that an optimal situation to buy gold would be a timeframe of 42 weeks from the last cycle bottom occurring when small speculators are bearish and bearish market psychology is dominant. Looking at figure 2 you will see that all those factors are now currently present. Is this very bullish for gold? I would have to respond with “yes”!
Figure 2 chart by genesisft.com As bullish as things may seem, timing is every thing in trading and price confirmation is essential. Taking a look at figure 3 you will see that gold has been in a constructive symmetrical triangle. A triangle pattern indicates indecision and a breakout resolves the indecision. This past week gold decisively broke out to the upside and measurements from the triangle project new highs for gold. It looks like the seasonal low is in and all systems are go. Take out your polish because I believe gold will glitter again.
Figure 3 chart by genesisft.com Update 1 – copper’s June rallyLast week I presented the argument for a June rally for copper and an optimal buy would occur after a quick pullback. Figure 4 is a combination of last week’s chart as well as an updated chart below it. With the long term trend up, I would expect surprises to the upside rather than the downside.
Figure 4 chart by genesisft.com --------------------------------------------------------------------------------------------------------------------------------- Disclaimer TradeSystemGuru.com obtains information from sources deemed to be reliable; |
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| Last Updated ( Monday, 07 July 2008 ) |
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