Chicagostock Trading

When the FOMC decided to place a 6.5% target on NFP rates to justify raising the federal funds rate, the SP500 was trading 1427, gold 1718, US dollar 7985, and 30 year bonds at 148.  

“… the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…” (FOMC 12/12/12 source).

Just days after this release, we highlighted the weakness in gold: Whats With Gold? FOMC Spooks Market. Double Top Eyes 1250.

Just a little over a year ago, in December of 2012, the Fed for the first time during its low interest rate policy, attatched a 6.5% unemployment rate to its fed funds rate.  As highlighted in December of 2012, this spooked the gold market, which at that time was trading 1655 with a range of 1526-1798 in 2013.  Bonds on the other hand closed the month of December at 148.  Since this new FOMC policy, both gold and the 30 year bond market front ran the unemployment rate target, seeing gold break its 2012 range of 1526-1798 to expand lower, making lows of 1179 in 2013, and lows of 12723 in the 30 year in January.  On January 10th, 2014, the BLS reported an unemployment rate of 6.7%, down 1.2% from Dec of 2012, and only .2% from the Fed's 6.5% threshold.  So with gold and bonds moving ahead of this target, and now the target coming into play, it only makes sense to see gold and bonds recover and turn the other way.

30 Year bonds put in a failed breakdown early January as the lows from 2013 of 12801 were taken out down to 12723, and failed to hold.  This has thus far led to a reversal and short squeeze, seeing the market recover above 13100.  Overall trend remains down as seen in longer term weekly chart with major resistance for this trend coming within 13320-13524. Breach of this range will change trend and momentum in the 30 year, confirming the weekly double botom and giving room to retest the March 2013 lows at 14014.

Gold's 2012 range of 1526-1798 (272), was expanded (272) lower into 1254.  This did not stop as panic selling came in and gold saw a flush down to 1179 before quickly recovering up to 1434. For the next few week's, gold's downside pressure from its new found downtrend below 1526, forced the market to retest the 1179 lows. Tax selling also put pressure into the end of year 2013 as investors sold gold to lock in losses and balance some of their stock gains.  In January, just as the bond market made a new low, gold also made a new low down to 1181.4, however managed to hold the 2013 low of 1179.4 by $2.  This has thus far led to a small bounce, retesting resistance from the prior high of 1267.5 made in December.  Today gold ran into these highs but has fallen short in taking them out by .5.  A move through the December 1267.5 high confirms a short term double bottom and gives room to retest next major resistance up to 1380s based off the 1434 high in mid 2013 before falling back below 1200.  This 1380-1434 level will be huge for the change in momentum and trend. As a break above this confirms a double bottom and gives way to retrace back up to and retest the 1526 level from where the market failed. 

Just as in December of 2012 with gold at 1655 and 90% of community being bullish after 90% was bearish sub 1000, this did prove correct and we did see a correction down to 1179. So at 1179, down $744 off the highs and unemp rate reaching 6.5%, is this the time to be short gold? Opposite as majority of community is back to being bearish metals, this is the time to start looking back into gold, and picking up physicals.  A flush below 1179 can still be seen, but should provide opportunity for longs as a reversal after the flush would be expected.

Gold broke out of it's downward channel it has been in since meeting its 1348 resistance level late last month and squeezed through it's 200day moving average for the first time since November 2012 on the 8 hour chart above.  After completing 1255 downside objective from 1526 and even falling further to 1179, this setup oversold conditions which gave way for the short squeeze that saw the market recover back from 1179 into 1348.  This 1348 level is a major level of resistance based off the pivot high of 1376 that led into the flush to 1179.  After hitting 1348 last month the market consolidated and traded lower to shake out longs, putting in lows of 1271.8, to hold 1269.3.  This setup a small double bottom which gave way for a reversal last Friday back above 1300. The reversal late last week above 1300 put pressure against the 1320 pivot high prior to 1271.  Overnight the market took out 1320 to squeeze shorts which gave way to highs of 1343.7.  This is now retesting the 1348 level and putting pressure to squeeze through this to take shorts out and confirm the hold above 1300 to open the gates to the next major level at 1376 being the high that led into 1179.  By taking out 1376 the market recovers its fall from 1376-1179, confirming the "flush".  At this point should gold do this U turn, we look for the market to consolidate and build a base to develop support for continued retracement back to retesting the 2012 lows up to 1526.

(click chart to enlarge)

Gold in 2008 was the first time the market breached the $1000 mark, hitting highs of 1033.9 in March just as the Federal Reserve Bank of New York provided an emergency loan to Bear Stearns to keep the company solvent from it's bets in subprime mortgages.  This was followed by a correction and liquidation in the fall just as the equity markets began to crash in September.  The panic and liquidation selling led gold to fall into lows of 681 in October before retreating back to retest the $1000 mark in February of 2009.  This created an Elliot Wave pattern that saw the first wave 651-1033, second wave being the corrective wave from 1033-681, third wave being the move back up from 681-1007, fourth wave which was a very small 38.2% correction of the 3rd wave, setting up for the fifth wave to try and continue higher.

(click chart to enlarge)

The fifth wave completed with gold moving from 865-1227.5 just as the Federal Reserve bank lowered their federal funds target rate to 0% in January of 2009.  This gave gold the fuel to move back through $1000 and continue this 5th buying wave to take out the old $1033.9 highs.  Showing gold's strength and proving naysayers who did not see gold breaching over $1000 again wrong.  As the 5th wave completed with highs of 1227.5, this led to profit taking and a small correction as gold corrected 50% of the 865-1227.5 move as well as coming back to retest the old 1033.9 highs with the gold making a low of 1044.5 in February of 2010. 

Back in December of 2012 on the 12^th, the FOMC released their statement that “… the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…”.  This was the first time since having rates at 0% the committee attached an unemployment rate “target”.  Since this statement, gold made a high of 1725 on that day, and never looked back.  It has been straight down since then. But this was not the beginning of selling in gold.  This was just a catalyst for long term holders to take profits. As we pointed out back in December “What’s With Gold? FOMC Spooks Market, Double Top Eyes 1250.”   Again this was not the beginning of selling.  Gold had a target of just above 1900 when it created a “diamond” pattern in August of 2011.  This was a continuation of the parabolic stage the market went in after the debt deal passed earlier that month.  Sure enough gold squeezed through 1900 into 1923.7 and reversed down into lows of 1535.  This was a major shakedown in the market place and left a lot of late buyers holding the back at parabolic prices above 1700.  Throughout 2012, the year was one major consolidation period.  After an early high of 1792.7 in March, the market pulled down to put in lows of 1526.7 in May. Not ready to breakdown, the market squeezed shorts and rallied back to take out the March high and print new highs for the year at 1798.1.  These new highs for the year once again failed to push past 1800 and the failure turned into a double top attempt.  Since this 1798 high, gold has been in profit taking and selling.  When the FOMC released their statement in December, this just gave excuse to continue the profit taking and move lower.  To start 2013, gold attempted to rally, only to put in highs of 1697.8 and roll over.  The reversal in January of 2013 to break the year low of 1626, continued the selling pressure, targeting the 2012 low of 1526.7.  With the 2012 low of 1526.7 being taken out in April, this confirmed the 2012 highs against 1800 as a double top.  By taking the range of 1526.7-1798.1 or 271.4, this gave a downside target of 1255.3. 

Most recently, we have seen gold complete this downside target of expanding the 2012 range down to 1255.3.  Of course the market did not stop there and went into further selling as longs panicked and stops continued to be shaken.  This led the market to fall below 1200 into lows of 1179.4, almost retracing 61.8% at 1155 of the 681 to 1923 move.  The breakdown below 1200 after completing 1255 put the market into extremely oversold levels.  The bear in gold is not new, this bear has been around since that 2012 double top, and the trend down since that high has been a $618 decline in prices from 1798.1-1179.4.  Short term gold is oversold, thus the bounce being attempted.  Gold below 1250 gives investors who patiently waited for prices to turn lower an opportunity to come in and pick up some physical and or invest long term at a 50% discount.  Gold remains in major downside pressure until it can close above 1300.  Doing so can give way to squeeze late shorts and attempt to retrace the market back to the 2012 low of where the market failed at 1526.  This old support should then act as new major resistance, however gives an upside target for buyers sub 1250 to target.  Bottom line: As we were bearish gold in 2012, we are now cautiously bullish and like putting some powder to work.  Failure to hold 1150 sees next major support at 1126-1045. Regardless, gold was trading 1900 just a few years ago, at 1250, this is a steal. Yes we can move lower, but it will only allow more opportunity to buy at lower prices, and NOT at parabolic prices.

“Buy weakness, sell strength’

When the FOMC came out with a 6.5% unemployment target, this put gold on the edge fearing higher rates.  This was enough to hold the 2012 double top after consolidating the 1600-1900 parabolic move with lows of 1526.7 and break below 1700 into 2013 to make this a new level of resistance.  January this year gold tried to rally only to fail at 1697.8 and break below the year lows of 1626 giving way toward the 2012 low of 1526.7. With the market falling below the 2012 low, this squeezed the 1526.7-1798.1 range, retracing the market near 50% of its 681-1923.7 move. Since hitting 1321.5 gold has reversed back above 1400 and quietly trying to fill back the breakdown.  The old lows of 1526.7 as the bottom of the 2012 range will provide a major area of resistance.  For the gold bull to take control after this 50% correction, a 7 day hold above 1700 reverses downside momentum and targets all time highs for resumption of the bull trend. Below 1526.7 will continue to give pressure lower as late buyers in gold during the parabolic move of 1600-1900 are caught holding higher prices.

Since the December 2012 FOMC meeting that "Spooked the gold market" as the FOMC members attached a 6.5% unemployment for a target on rates, gold has fallen $362.6.  However since the failure to break above 1800 in 2012 and double topping at 1798.1, the market is down $442.8. So why the sudden crash over the past 2 days? As we know the market ran from 681-1923.7 as the FOMC cut their rates down to 0%.  The year of 2012 was all about consolidation.  It traded in a range of 1526.7-1798.1 which lured in a lot of late buyers betting on "hyperinflation".  As gold has most recently failed and broken below this 2012 low of 1526.7, it has confirmed the highs in 2012 as a double top.  This range of 271.4 (1798.1-1526.7) can now be subtracted below 1526.7 to give room to expand the market down to 1255.3.  This target when put out in December was looked at as a crazy and a lot of "gold bugs" were insulted. Today the market is bringing pain to these gold bugs as it shakes them out.  The current breakdown clears and shakes out buyers who came into the market above 1500.  The move is good for "smart" money who have been sitting on the sidelines awaiting for the market to go on sale. Completion of this move is seen at 1255 which also retraces the market 50% of its 681-1923 move. In the big picture, that would offer a 50% sale off the highs and bring the market back to where it broke out in 2010.  This range of 1200-1300 will offer an area of major support for the market to attempt to build a base for long term buyers to watch for to come in and buy the sale.  A break of 1150 would give room to test major support at 1000 being where the market broke out in 2009.  Failure to hold above sees the 681 low  targeted and at that point the long gold story would be all over. Short term yes the market is very over sold and the long community is in shell shock, the old lows of 1526 is now new major resistance with next level of sell stops below 1309.1 as the 2011 lows.

Gold's double top from 2012's year of consolidation following the 182% gain from 681-1923.7 has seen the market channel lower since that high of 1798.1.  This year began with a early breakdown followed by a bounce up to 1697.8 where the market failed to push through, leading the market to breach the year lows of 1626 in contrast to the US dollar reversed to take out its year highs.  Going forward, the market is now testing its last level of support based off its 1526.7 lows made in 2012.  This week has been a major failure as the market rallied to take out last week's highs of 1618.8, only to fail and turn back lower to where the week opened at 1579.7.  The downside chase continues and the 2012 lows are being targeted by bears.  A breach of thsi 1526.7 low confirms the 2012 double top and gives room to expand that $271.4 range which gives a downside target of 1255.3.  This would retrace the makret 50% of its 681-1923.7 move and offer long term investors a big area to buy.  Move back above 1676 reverses the bearish bias to give room to retest year highs.

When gold made highs of 1033.9 on March 17, 2008, it was a day later when the Federal Reserve came out with a FOMC statement, lowering the target for the federal funds rate aggressively by 75 basis points down to 2.25.  It was during this year this federal funds rate had begun to see drastic cuts from the Fed, until it finally got to 0-.25% early 2009.  Throughout all of 2008 the funds rate dropped from 4.25-1.00%.  Throughout this time, gold also saw a correction as the economy crashed in fall of 2008 seeing gold prices down to 681 in October.   Having already seen a 99% increase in prices from 519.5 to start 2006 into 1033.9 in March of 2008 this gave some reasoning for people to sell and take profits.  The shakeout brought prices down to 681 in the fall before bouncing off these lows.  This led to another push back at the 1000 level where the market coiled like a spring looking for direction.  During this time, 90% of the investment and trading community did not expect to see gold to run through 1033.9 anytime soon.  Sure enough,  with the third attempt in 2009, the breakout was seen: http://twitpic.com/co4yy.  This breakout created a parabolic run seeing another 86% added on top of 1033.9 to run into highs of 1923.7 in September of 2011, just 3 years after making the 681 lows.  All throughout this time, the fed funds rate remained 0-.25%.  The investment community jumped on the bandwagon and commercials for gold investments skyrocketed.  Since making this parabolic high of 1923.7, a correction began as the market looked to consolidate the move (http://twitpic.com/7bylsj).

2011 closed out with prices trading at 1566.8.  For the year of 2012, it has been all about consolidation.  The market once again ran into the 1800 resistance level early in the year with highs of 1792.7 before seeing another correction down to 1526.7 in May.  Not ready to move lower, the market held the December lows of 1523.9 and squeezed shorts and sellers as the market returned back to the highs of the year, once again pressing that the 1800 level.  The market put in highs of 1798.1 in October.  Once again, failing to push through 1800 for the THIRD attempt.  This created a double top for the year of 2012 with highs of 1792.7 and 1798.1.  Thus far the market has fallen back to the mean of the year inside the 1660 level.  This pullback has the market retesting where it broke out in  August of 2012 where the market pushed above the 1640 resistance level that troubled it during the summer.  This is now MAJOR support for the market and for gold bugs to defend.  The pullback offers the gold bugs this retracement to defend this pullback where the market originally broke out, turning old resistance of 1640 into new support.  Unfortunately, gold bugs defending this pullback must look to risk a break below the 2012 low of 1526.7.  Since gold is in a trading range of 271.4, this trading range gives the target on any expansion outside the range. Meaning a breach of 1526.7 gives room down to 1255 which would retrace the market down to the June 2010 high and just a little over a 50% retracement of the 681-1923.7 move.  Conversely, should buyers be able to hold the 1526.7 lows (which I don’t expect), a move through 1800 can see an upside target of 2069.5 by simply taking the range of 271.4 and adding it to 1798.1.  This is the task for next year, 2013 to find direction in the gold market. Throughout 2012 the market consolidated and traded within this range of 271.4 and put in a failed higher high at 1798.1 which gives the potential of a double top.  Of course just as 90% of the community was bearish gold sub 1000, 90% of the community is now bullish gold.  Regardless, we have a range bound market seeing pressure to break lower and shake down to 50%. This comes on the heels of the latest FOMC statement where for the first time since dropping the Fed funds rate to 0-.25%, the Fed finally attached a target to how long they will keep interest rates this low.  In the latest FOMC statement on December 12, 2012, “… the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent…”. After 3 years of having low rates with no target, a target now given, the gold market is being cautious and since this FOMC statement, already down $82 to 1636.

 After gold tested its May lows of 1526.7 on the 30th, the market put in lows of 1532.1, holding those lows and reversing.  This showed signs of life and defense of these lows and the market most recently pulled into retest this 1532.1 level with support at 1548.  Today May 1st this was tested with a 1545.5 low and the market held to reverse and squeeze higher.  This move has caught sellers off guard and is retracing to test its major resistance of 1627-1672 of where the market failed in May.  This will be an area sellers must look to defend as a move past 1672 reclaims the ball for gold bulls.  

Buyers of 1548 level all out on this move for +126 in a day as squeeze has retraced 61.8% of breakdown.

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