Gold Trend 18/02/2013

Fundamentals

Let’s start our discussion from most recent COT report. As gold turns south – reaction in sentiment be not long in coming. Although long position of speculators remains at at the same level and has shown just small decreasing, short positions have increased significantly and, as a result, net long positions has decreased. Total open interest also has increased, and shows jump in short positions. Still, let’s avoid to dramatize the situation yet. COT report indeed shows increasing interest to short positions and shows increasing of shorts positions per se. 

At the same time, we have unresolved situation with divergence between Gold prices and speculative positions. This is the second case of such divergence since 2003. On the chart, that we’ve started discussion on previous week we see that from 2004 minimum level on non-commercial (speculators) net positions stands around 50-60 K contracts and currently, as we said they are almost at minimum. Hence this contradiction has to be resolved soon. How it should happen? Take a look at the chart and the first ellipse first. See – when the price of gold tested the trend line for the last time (when arrow stands) and then market has broken previous high – speculative positions has shown fast appreciation. 

Currently we probably should stand somewhere near this point. Most recent downward swing of Gold price has not broken the trend line yet (as you will see on monthly chart), that stands for February at ~1570, so this upward trend still holds. At the same time speculative positions are near the low, but the still have room to decrease for another 5-10K. The thing that I want to say is - it’s not done yet with upward trend in long-term perspective, even based on sentiment analysis. This divergence can’t last forever, it should be resolved – either gold market has to drop significantly, or upward continuation should follow. 

4-hour

Here we probably could get a context for DiNapoli directional pattern that could trigger retracement up. I prefer to get B&B “Sell” from WPP area. Anyway, first level to watch for is 1630-1632 K-resistance, that is also WPP and previous low. If market will break through it – next is 1650 Fib resistance and WPR1. 

Daily

Trend is bearish here, but market at oversold at 1.27 extension point of butterfly. Some retracement up could follow, the question is again – what retracement? Based on harmonic swings it could be either to 50% or slightly higher than 0.618. We do not have patterns here to say definitely. Thus one of our tasks for Monday will be to monitor price action on intraday charts and try to catch any pattern that could clarify this moment. Because as deep retracement as shallow one has foundation. Deep retracement could happen, because gold likes to do 0.618 retracements, and market at oversold, while shallow retracement could happen, because gold rare makes deep retracement when trend accelerates – take a look at previous move down and second, if market fails around 1.27 target of butterfly and intends continue move down – it rare makes deep retracement.

I expect that market will proceed to 1.618 target of butterfly, mostly because of long black candle right at 1.27 target – this usually lead to further continuation. So, retracement will probably happen and we need to search possibility to short entry, but will be better if we will get some pattern on our back and will not enter just from Fib level. 

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GOLD CURRENT TRADE
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Long 1 April Mini Gold at 1603 on 15/02/2013

Stop lose at 1582

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YOU SHOULD NOT TAKE ANY MATERIAL posted on this BLOG AS RECOMMENDATIONS 
TO BUY OR SELL GOLD OR ANY OTHER INVESTMENT VEHICLE LISTED. 

 Do your own due diligence. 

No one knows tomorrow's price or circumstance. 
 I intend to portray my thoughts and ideas on the subject which may s be used as a tool for the reader. 
I do not accept responsibility for being incorrect in my speculations on market trend. 

 King Regards