Technical observations of RossClark@shaw.ca
The Commitment of Traders positions in gold, released by the CFTC on Friday, pushed to further extremes as of Tuesday's data. Net commercial shorts are up 4k to 183k while speculative long positions rose 4k to 142k. These are beyond the levels seen at the top of the market in May 2006. The RSI of these numbers produces readings of 31 and 68, at levels only seen eight times in twenty years. This implies that we should see a correction lasting six to eight weeks. Any interim rallies that retrace 40% to 78.6% of the decline from last week's high become a trading opportunity.
Our interpretation of the Pi cycle (3,141 days) and its 1/8 subsets determined that gold was scheduled to produce buoyancy into February 26th and weakness in the following weeks. Each subset of the cycle has produced corrections from which we have well established re-entry rules that were established in the 1980s. However, because this is a major turn in the cycle, not a subset, a minor low can be anticipated after March 9th but gold prices can be expected to stay under pressure for a total of six to eight weeks (April 9th to 23rd) before being capable of the next sustainable rally.
Using weekly charts our proprietary summation oscillator and 'snap' alerts are designed to identify the bottom of the next correction. Time and momentum are more important than price levels. When these come into place we will move back to a recommendation of holding an overweight position in precious metals. Until then we would suggest positioning into stocks that are potential takeover candidates or small enough to have company specific news that can impact the price.
CHARTWORKS - MARCH 5, 2007
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