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COT and Pi Cycle Analysis Suggests
Short Term Vulnerability during March or April

Technical observations of

Bob Hoye
Institutional Advisors
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%.

-Bob Hoye
Institutional Advisors

CHARTWORKS #2 - FEB 26, 2007

Hoye Archives

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