CHARTWORKS - FEB 26, 2007
COT and Pi Cycle Analysis Suggests
Short Term Vulnerability during March or April
Technical observations of RossClark@shaw.ca
Posted Feb 27, 2007
We've reached the Pi
cycle date where gold generally sees a 4% to 6% price decline
before continuing higher. Another sign of caution comes from
this week's Commitment of Traders data. Speculative positions
are up another 13,000 at 137K and commercial shorts have ballooned
to 179K. The last time commercial positions moved up to this
level was Sept 23/05 when the price reached $460 for the first
time since June of 1988. It then moved marginally higher the
next week only to spend six weeks in a 5% trading range ($455
to $480) before being capable of making the push through $500.
GoldWorks Model: When moving in the direction of a
dominant trend you only need concurrent RSI readings of commercials
and speculators above/below 60/40 to create an entry signal (most
recent buy signals: Sept 15/06 to Oct 27/06). Counter trend
signals generally provide alerts as to the vulnerability of the
market to a correction and work best once the RSI readings are
above/below 65/35. Such a condition is in place now with the
levels at 67 & 32. Gold may be able to move marginally higher
over the next few weeks, but it is clearly in a vulnerable position
and we recommend that traders maintain tight risk control.
While silver stocks have been
performing famously, the gold stocks have been lagging. The sector's
indices (XAU, HUI, GDX, XDG, etc.) continue to maintain a bearish
divergence relative to the July 14th and December 1st highs.
Prudence suggests keeping positions to a core level to take advantage
of a correction that could easily be in the range 10% to 30%.
CHARTWORKS #2 - FEB 26, 2007
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