Saturday October 9, 2010 - 01:15:32 GMT
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Weekly Gold Finishes Higher, Daily Looks Toppy
Weekly December Gold closed higher for the week. Even though
the market closed up on Friday, the closing price reversal top on Thursday is
still in place, indicating a possible short-term top. While a change in trend
is not indicated at this time, the closing price reversal top could be
indicating the start of a substantial correction.
Upside momentum stopped Thursday during the night session a
few hours before the European Central Bank announcement while the acceleration
to the downside started right around the time ECB President Trichet started
The current chart pattern suggests the market is due for a
correction. Uncertainty over the size of the Fedâ€™s upcoming quantitative easing
could make traders worried enough to begin paring long positions. Overbought
oscillators and indicators may also trigger the start of decent move to the
downside. Ultimately, however, the buyers are going to have to pull their bids
in order for this market to break.
Technically, the closing price reversal top could be the
start of a 50% correction of the last main range of $1237.90 to $1366.00. The
first downside target is $1302.00, followed by $1286.80. The break could be labored, however, because
of three uptrending Gann angles at $1367.30, $1343.70 and $1321.90. If you miss the short side, donâ€™t worry.
Buyers are likely to step in if this market retreats to $1302.00 to $1286.80.
Forex Traders appeared to be saying â€śnow whatâ€ť based on the
way the currency markets traders on Friday after the release of the U.S.
Non-Farm Payrolls Report. Instead of saying â€śnow whatâ€ť, they should be saying
â€śhow muchâ€ť as in how much will the Fed ante up to stop the U.S. economy from completely
While todayâ€™s employment data didnâ€™t actually surprise
anyone, it did show that the jobs outlook is still bleak. Since the U.S. Dollar
was driven into the ground this week, it is clear that traders were already
pricing this report into the market. The pause in the trend on Thursday and the
hesitation moves on Friday could be indicating that traders are now thirsting
for more information. This information is how much is the Fed willing to pump
into the economy, how they are going to do it and where is the money going to
The phrase â€śshock and aweâ€ť hit the markets late this week.
Some traders believe the Fed is going to attempt to stimulate the economy in
one fell swoop. In other words, if they commit a trillion dollars to
quantitative easing, then do it all at one time. Others expect the Fed to tell
the market how much they are committing then announce that it will be spread
out over a period of time. A third option may be to tell the market the amount
then pledge to take a â€śwatch and seeâ€ť approach as they bleed small amounts of
cash into the markets. One thing the Fed doesnâ€™t want to do is short change the
economy at this time.
After completing a Fibonacci retracement of the 1.5144 to
1.1876 range at 1.3896 and actually trading through the level, the Euroâ€™s
upside momentum has slowed down. On Thursday it came close to posting a closing
price reversal top which would have caught the eye of top-pickers, instead the
break sort of whimpered indicating the bulls are still in control.
If selling pressure is to begin then there is no better place
than between the Fib level at 1.3896 and the psychological 1.4000 level. I said
selling pressure because I donâ€™t believe there will be aggressive shorting. I
also feel that smart money is already long and isnâ€™t too excited about piling
on new positions this deep in the uptrend. This means that big money may decide
to pare their positions enough to scare the weaker longs and those late to the
party, out of the market.
The funny thing about trends is they seem to be the easiest
to trade but with each passing day the trader in the trend has this fear that
the trend will end and he will have to give back some of his hard earned
profits. Others want to be extremely â€śdisciplinedâ€ť and ride the trend until it
changes. Still others who missed the trend canâ€™t seem to wait to play the
reversal. I guess this is what makes the market.
Remember just a few months ago when analysts were talking
about the demise of the Euro. Some traders were saying at that time that
institutions and hedge funds were never going to stop pressing this market
lower. The downtrend in the Euro at that time was being fueled by an event or a
series of events. Those tend to have shorter cycles. Currently the December
Euro is being driven by a policy. The current weak Dollar policy instigated by
the Fed and blessed by the Treasury could be with us for a long time.
Technically, if 1.4028 is the top of this swing, then
aggressive traders can start looking for a 50% retracement of the rally from
1.2644. This makes 1.3336 a potential downside target.
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