01 July 2010

Gold Daily Chart: Shock and Awe; Cup and Handle Formation; US Bonds on Deck

The metal bears and bullion banks certainly get an 'A' for effort in this most impressive 'shock and awe' smackdown in the gold bullion futures. I was getting concerned about this sort of attack given the recent things floated out in the press about gold and its relationship to external events.

I had an email this morning saying that 'this proves that charting has no value in a manipulated market.' If this is your understanding of charting, that it is a sure thing, that perfect system you have been looking for, then you are right, it has no value to you. Maps do not take you where you wish to go; maps let you know where you are relative to your objective.

What charting provides is perspective, a visual representation or 'map' of the market.

More importantly, it helps us to understand the context of this sell off, which looks like the banks 'threw the kitchen sink' at the futures market over growing concern about the potential for a breakaway rally, and the physical offtake at the Comex getting out of control.

That this is US-centric selling program could not be more clear from this chart, a selling phenomenon which is repeated almost every day after the London PM fix and as the US markets open.

I do think the cup and handle formation is still active, although it has been pressed to the level at which we would be more concerned about follow through selling to the downside. As we have always said, in the event of a general selloff, a liquidity panic, everything will get sold, and the charts are trumped.

I was a little surprised that they could press it all the way down to 1199 even on an intraday, expecting 1204 to provide more solid support. But the trade is thin, and the markets are 'lightly regulated' by the CFTC under Gary Gensler (Goldman alumnus) to say the least.

Now having said all that, I am not overlooking a broader setup in the markets, created by the likes of Morgan Stanley, Goldman Sachs, and JP Morgan and their associated hedge fund cronies, in which the big financials are herding investors, shoving them around the allocation plate, keeping them moving, which is how they make their money through taxing transactions heavily with fees, commissions, and soft frauds.

Stocks are rather oversold in the short term, and the bonds are very overbought. As I mentioned yesterday, if the market does not 'crash' it would be quite seasonal for the bonds to come under bear attacks in July. Here is what that chart looks like.

Can they get ever more overbought? Sure, we just saw that sort of panic buying in the last great plunge in US equities. But historically bonds are well priced to put it mildly, and certainly not for anyone seeking value. I think a lot of tension in the market is due to the Jobs Report tomorrow, and the fact that most traders will be leaving on vacation after today.

As I recall Goldman was forecasting stocks to go lower, down to 950, if we broke support as we did a few days ago. I am interested to see if their forecasts match up with their own books. Personally I think that since they are a Fed supported bank, they should be required to disclose all their major positions in the particular, not aggregate or net, on a monthly delay at most, with weekly even better. That way the people would know if these monstrosity banks are acting honestly as a major bank supported by taxpayer dollars, or are they really enormous hedge funds which are entitled to a greater level of secrecy, but should be fully culpable for all their losses.