2 August 2009

Gold Techs, Kapoom Theory....

But this is no more than an argument that the U.S. is not likely to experience a replica of an Argentina 2001 debt and currency crisis, and of course that is true. But that does not mean that a related, equally unseemly but fundamentally different catastrophic result may follow from similar causes and crisis triggers. Evidence abounds that the U.S. is trapped in a cycle of economic contraction and declining creditworthiness from which an Argentine style default with U.S. characteristics is all but inevitable.

Here we take a deep dive into the macro economics of the Argentine crisis—GDP growth, consumption, investment, inflation, industrial production, unemployment and a dozen other details of the Argentine economy in the period before it collapsed at the end of 2001. We compare the same macro economic measures during the U.S. economic crisis that started in 2008.

A few items, such as currency reserves, stand out in ways that show how different the U.S. situation is now from Argentina’s then, but most of the macro economic comparisons reveal astonishing similarities, especially measures of output and inflation.




The long term P&F chart is still in a bullish phase but it has now set a new upper support at the $915 level. A move to $900 would break below the support and two previous lows as well as an up trend line for a trend reversal signal. Just something to keep in the back of one’s mind if the price should start to drop.

As for our normal chart and indicator analysis, things are still a-okay for now. The price of gold remains above its positive sloping moving average line and the long term momentum indicator (daily version) remains in its positive zone above its positive trigger line. The volume indicator is at its highest point since its highs in late February and is above its long term positive trigger line. Nothing here yet to get worried from the long term standpoint. The rating remains BULLISH.


Since the end of January the price of gold has been basically in a wide lateral drift with the upper and lower barriers at about the $1000 and $870 levels. I guess as long as it remains in this box, with the right wall continually moving further to the right, it would be hard to really guess which way the eventual direction of future trend will be.

While in this box the intermediate term moving average line will move in a basically lateral direction and the price of gold will continue to fluctuate above and below the moving average line. This makes it very difficult to definitively gauge the influence a crossing of the moving average line by the price will have. So, although I will continue with my normal commentary as to the positive or negative nature of the price versus its intermediate term moving average line one should keep in mind this box situation. An intermediate term trend will most likely start inside the box but its confirmation must await a move outside the box.

Having given myself the cop-out excuse in case my analysis is wrong, let’s go to the intermediate term analysis.

The price of gold has once more moved above its moving average line and the line slope is once more in the positive direction. The momentum indicator has set up a strong support just above the 48% level. This would be a level to watch (instead of the 50% level) for a real change in strength of the price move. In the mean time the momentum continues in its positive zone above its positive trending trigger line. The volume indicator is also trending positively and remains above its positive sloping trigger line. All normal indicators give me an intermediate term rating as BULLISH, at this time.


From the short term perspective we are still in good shape. The price remains above its positive trending moving average line and the momentum indicator remains in its positive zone just above its positive trigger line. As for the daily volume action, well that could be a little better but I wouldn’t complain yet. All in all, the short term rating is BULLISH.

As for the immediate direction of least resistance, that’s another story. We have the price above its very short term positive moving average line (8 DMAw) while the line remains above the short term line. However, if one looks carefully the moving average line has started its turn towards the negative (although it’s not there yet) in keeping with the lateral move of the price over the past few days. Of greater concern is the action of the more aggressive Stochastic Oscillator. It had topped out in its overbought zone and has now dropped below the overbought line and its trigger line. It is now heading lower. This is too often a precursor to a turn down in the price, at least for a short while. So, I must go with the down side as the direction of least resistance until something in the indicators changes.


First, a quick comment on my P&F chart of silver. It has set up a strong support at the $12.00 level. A move to $11.50 would break that support and would break below an up trend line. From a P&F standpoint this is the level to watch. Until then silver remains long term bullish, P&F wise.

Silver still has a better performance versus gold over the intermediate and long term but is losing its advantage. Although this past week it performed better than gold it still has some catching up to do from the shorter term standpoint. A comparison of the two short term charts here shows that silver dropped more than gold in June and although it is recovering nicely these past two weeks it is a catch-up game and still better performance is required.

From a long term perspective silver had dropped below its moving average for a couple of weeks in early July but is back above the moving average. The average continues to slope upwards. The momentum indicator also dropped into its negative zone at the same time but is also back into the positive, above its positive trigger line. For the long term the rating is back into a BULLISH rating.

The intermediate term is not quite so lucky. Although the momentum indicator has moved back into its positive zone and above its positive trigger line the price of silver remains just below its intermediate term moving average line. The line itself is still in a negative slope. The volume indicator has been moving in a basic lateral direction over the past couple of months although it is presently above its positive sloping trigger line. On the intermediate term the best I can give the rating is a – NEUTRAL rating. Next week, should the price of silver advance again most likely this rating will go full bullish. But we’ll have to wait for it.

The short term is more encouraging. It often tells us what’s ahead for the other time periods. The price is above its moving average line and the line is sloping upwards. The very short term moving average line remains above the short term line for a direction confirmation. The momentum indicator is in its positive zone above its positive trigger line and heading higher. Only the daily volume activity could be a whole lot better. The recent two week advance in price was not accompanied by any significant increase in volume activity, in fact the daily volume seemed to have dried up. This is a real concern for the longevity of this rally. In the mean time the short term rating is BULLISH.

Each major bear market in the D. J. I. A. has been accompanied by a bull market in gold and gold shares. The first two major bear markets in the D. J. I. A. did not end until the bottom green area was violated. The third and current major bear market has not yet gone below the bottom green area. This is powerful evidence that the bear market may not be complete but is ongoing.
Based on the previous bull markets in gold and gold shares the current gold bull market will not end until after the bear market in the D. J. I. A. ends.


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