There are two futures markets that are making similar patterns this week; the precious metals market and the crude oil complex. We will first take a look at the precious metals market. The gold and silver index, XAU, is forming various Gartley patterns. It goes hand-in-hand with the various Gartley patterns that we have forming in gold, silver, platinum and copper. I know that copper is not a precious metal but it usually tags along with the others most of the time. Gold has formed a perfect Gartley sell pattern at $1775 per ounce. An AB=CD pattern is present in all of these metals. Probability strongly suggests that we are in an area where a correction should occur. Dealing in probabilities is the nature of our business so if these patterns fail it would strongly suggest much higher moves and potentially into new high ground. Silver has been lagging gold since it made its high on April 25th. Platinum likewise is tagging along and now selling at more than $100 per ounce discount where in the past it has always sold at a premium to gold.
Crude oil has come up against strong resistance i.e. we think at the $95 per barrel level. This level is shown to be strong resistance over the past several weeks. It will take a strong close above the $96 per level to get this market moving to the upside. Keep in mind it has been going up for several weeks and is in a very overbought condition. Gasoline futures have lagged badly to the crude oil market but were able to rally $.13 a gallon this past week. The same situation is occurring in heating oil which also rallied the same amount toward the end of the week. It might’ve been related to the bad weather coming to the eastern United States but it could be something more bullish. Crude oil is the one to watch and is the most actively traded around the world. This market moves in incredible swings and makes beautiful patterns following the Fibonacci sequence of ratios in nearly clockwise precision.
In the stock indices, the only thing we can say starting this week is that the market did not explode to the upside following the myriad of Fibonacci numbers and patterns that we have forming on October 27th. I would make a strong suggestion at this time! Draw a circle around the highs that were made on October 27th in all the stock indices. Should we close above these highs it would tell us that the cycle we were looking at has failed and one more leg is coming. Bearishness around the world has dissipated a bit and the news coming out of Greece seems to control just about everything. Frankly, in my opinion it means very little and the markets are going to go where they decided to go from the very beginning. Remember in last week’s letter we talked about the importance of all those patterns and ratios that came together on October 27th. Should the Dow Jones go above 12,300 and the S&P 500 above 1270 it would appear that something is wrong with this BEARISH cycle. It’s apparent that we are in a downtrend on a global basis. What we have seen since October 4th is a sharp short covering rally in my opinion. Weakness this week would confirm that this was the case but strength, as mentioned before, would certainly dampen my bearish enthusiasm. None of the indices that we discussed last week were able to make new highs. All that happened on Thursday and Friday were Fibonacci retracement’s in nearly all of these markets. In my opinion, it boils down to what happens this week. Weakness this week tells us that we are going lower and the more weakness the lower we go! The NASDAQ has continued to lead the market and I’ll be watching very closely because the stocks are now the social network much like we had with the Internet bubble in 2000.
Treasury Bonds
Last week we expected a sharp rally in the Treasury bond market because it bounced off the 382 retracement of the year’s lows. T-bond’s stopped exactly at the 618 Fibonacci retracement and it sold off marginally. The price we are watching on the downside is roughly 138. Should the market extend above 147 to form the final target that were looking at 151 I am going to issue a special report getting ready for a short sale. I still believe that this will be the trade of the decade by being short bonds but I’m still waiting for that last gasp making interest rates on a 30 year treasury bond below 2%. Ask anyone you know who they would lend money at 2% for 30 years?
Foreign Currencies
Last week’s foreign exchange markets were very active. The euro hit the exact 618 of the weekly charts at 142.50 as the British pound was making its 61% retracement above the 161 level. The big news this week was the intervention by the Bank of Japan much like what they did in August. The butterfly pattern that we have been looking at with the longer-term cycle of 45 weeks and the shorter term cycle of 24 days fit perfectly with that intervention. What was interesting to watch was that the amount of pips that the Japanese yen vs. U.S. dollar moved in the first few hours of trading. It was one of the most unbelievable things I’ve seen as a technical analyst. The move in August was exactly the same as the move we made last week. This was to the exact pip. Anyone who does not believe that central banks can play havoc with Forex markets can only take a look at this chart and see that they do have some type of preconceived plan at certain times. Should the Japanese yen/US dollar get above last week’s high it will tell us that the yen is going to weaken versus the dollar which we have been saying for quite some time.
Trade of the Week
Gold is making a perfect Gartley sell signal at the $1775 per ounce level! Aggressive traders could use this as a shorting opportunity using a $15 per ounce stop. First profit objective would be $45 per ounce and the second profit objective would be $90 per ounce. This is not a trade for the faint of heart but only for experienced commodity traders. Using the ETF GLD it would be a similar pattern forming. What makes this so interesting is that we have the same Gartley sell patterns in all of the metals.
Technical Corner
This week’s focus will be on live cattle:
The live cattle market is forming another AB=CD pattern following the same pattern for the past few months. The importance of the last AB=CD pattern into new high ground is very important as it means a breakout has occurred or a bear trap has been set (notice the areas on the chart as the cattle began their “bull” run). Harmonic moves like these are on all charts and I highly recommend technicians look at them as they are telling a story of cycles in price! COW, the ETF for cattle, has lagged badly recently which may be another clue as to a potential top in cattle. It is my opinion that this emphasizes why some ETF’s are not a good proxy for the actual futures account but can still be used for exposure in retirement accounts that allow these types of investments.
Final Thoughts
The big news this weekend came from the Chicago Mercantile Exchange regarding the deposition of funds from the bankruptcy of MF Global. It appears that an agreement has been reached to return the funds but there are still many questions to be answered. Originally, on Friday evening the Mercantile Exchange, members had a meeting and issued a very vague statement. The statement contained words that appeared to mean that all margins were going to be raised. Later this was refuted and basically they are trying to make equitable arrangements to transfer accounts from MF Global to roughly 10 other CME firms. What they are going to do has never happened before so how it is going to work is anybody’s guess. The one thing that I do know is that the Chicago Mercantile Exchange values its integrity more than anything else. Keep in mind that if you have your funds in exchange traded brokerage house and that stock begins to drop rapidly I would highly recommend having a bank wire to close your account as quickly as possible. Evidently MF Global sent out checks to people wanting their money as opposed to a bank wire and now these checks are supposedly worthless because of the bankruptcy, which would make sense. The only advice I can give you here folks is to follow the money as that’s where the end is going to come.
