By Scott Silva
Editor, The Gold Speculator
7-24-12
How Bad Can It Get?
Well, that’s the question that
the central planners need to answer, but not one seems ready to admit the fact
that the US economy is slowing down further despite the rosy outlook of
presidential re-election cast of characters, which includes most of the media.
Those stubborn facts remain: unemployment is climbing, not declining; consumer
sales are down; corporate capital expenditure
(CAPEX) is down; energy prices are headed up; food prices are headed up; real
wages are down; housing prices are still down; real interest rates are
negative; national debt is growing; and GDP is slowing.
So what’s the bad news? The bad
news is we are hurdling toward the fiscal cliff, Thelma and Louise-style, with
POTUS and Big Ben Bernanke holding hands in their blue ‘66 Thunderbird
convertible as it plummets to the canyon floor below. The sad fact is there is
a leadership vacuum in Washington, which prevents rational bipartisan
decision-making regarding deficit reduction and spending priorities. If the
debt limit fiasco of last August is any measure of dysfunction by the Federal
government, then stand by for the real fireworks display as the Super Committee cuts kick in,
the Bush tax cuts expire (for every taxpayer), and the Obamatax takes hold.
Each one of these Federal
bipartisan compromise measures will decimate jobs and grind growth to a
standstill. A recent study concludes that the automatic spending cuts mandated
in the Budget Control Act of 2011 affecting defense and non-defense
discretionary spending in just the first year of implementation will reduce the
nation’s GDP by $215 billion; decrease personal earnings of the workforce by
$109.4 billion and cost the U.S. economy 2.14 million jobs.
That’s no way to stimulate the
economy, which is exactly what Fed Chairman Bernanke told House and Senate
Finance Committees last week. The Chairman’s remarks painted a pretty gloomy
picture for US economic growth, and he repeatedly pointed to fiscal policy
(outside his control) as a major culprit. The markets were hoping he would
announce the start of QE3, but Big Ben could only reiterate that the “Fed
stands ready to act…when conditions require…”
Oh well, Ben and boys will have another chance to make the big
announcement when the FOMC meets again Jul 29-Aug 1. Chances are the Wisemen
will offer nothing earthshaking after their regular pow-wow.
The markets are searching for a
reason to climb, but the threat of extended recession in the US, deepening
recession in Europe and a slowdown in China all work against any sustained
move. Sideways motion seems to be the trend. Something has to change before
investors decide to pour capital into risk-on asset classes. Many are happy to
stay in Treasurys and precious metals until there is some light ahead, which is
why stocks have taken such a beating this year, and prices of T-Bonds and gold
are maintaining their prices.
What are the technical indicators
telling us about gold now? We can use
technical pattern analysis and the more complete Ichimoku Kinko Hyo indicators
to examine trading decisions for gold.
Gold has formed a symmetric
triangle pattern evident on the daily basis chart. Symmetric triangle patterns
typically form during a trend as a continuation pattern. The pattern contains
at least two lower highs and two higher lows. When these points are connected,
the lines converge as they are extended and the symmetrical triangle takes
shape. The pattern shape appears as a contracting wedge, wide at the beginning
and narrowing over time.
Symmetrical triangles can mark
important trend reversals. They can also mark a continuation of the current
trend. Whether signaling a continuation or a reversal, the direction of the
next major move can only be determined after a valid breakout. A “breakout” of the pattern occurs when the
closing price is above or below the narrowing pattern lines. Therefore, the
breakout can be to the upside or the downside. Determining a valid breakout can
be challenging; price action can return to the breakout point creating a false
breakout. Increased trading volume concurrent to the breakout is a reliable
confirmation indicator. Other useful confirming indicators include proof of a
3% move above the pattern line and the time-based rule, such as a sustained
move over three days.
To determine the price target
for a breakout from a symmetric triangle pattern, we can either measure the widest
distance of the symmetrical triangle pattern and apply it to the breakout
point, or we can draw a trend line parallel to the pattern's trend line that
slopes (up or down) in the direction of the break. The extension of this line
will mark a potential breakout price target.
Today, price action is between
the pattern lines whose breakout values are 1612 on the upside and 1559 on the
downside. If price action slides sideways from here, the breakout values
converge, creating more opportunity for a breakout without a substantial change
in price. For example, if we project sideways movement to August 16th,
then the breakout values narrow to 1598 and 1571. The depth of the triangle sets the price
increment at 72 points.
The Ichimoku Kinko Hyo
indicators confirm these support and resistance values of the symmetric
triangle pattern above. The cloud or moku is the shaded area on the Ichimoku
indicators chart below. The cloud depicts support and resistance levels and can
be projected forward. For gold, the projected cloud is narrowing. Also, the
projected cloud top is flat, which portend sideways movement. The support and
resistance levels for the projected cloud out at August 17th are
1598 and 1590.
The Ichimoku indicators tell us
more about price gold than the triangle pattern. Ichimoku, the “one look
equilibrium chart”, gives us not only support and resistance, but trends,
momentum, and trend reversals in a single, coherent view of its five
price-related indicators. Professional traders use Ichimoku indicators to trade
currencies, futures, stocks and bonds successfully by tapping into to strong
trends. There are well established rules for trading using Ichimoku Kinko Hyo,
which we use at The Gold Speculator. Right now
these indicators signal “hold” for those that own gold. These same indicators
will tell us when the time is right to “Buy” or “Sell” to take full advantage
of the new intermediate trend for gold.
So no matter how bad the economy gets, we can stay ahead of the pack by
trading hard assets, such as gold.
Responsible citizens and prudent investors protect
themselves and their wealth against the ambitions of over-reaching government
authority and debasement of the currency by owning gold. Gold is honest money. Investors from around the world benefit from timely
market analysis on gold and silver and portfolio recommendations contained in The
Gold Speculator investment newsletter, which is based on the principles
of free markets, private property, sound money and Austrian School economics.
The question for you to consider is how are you going to
protect yourself from the vagaries of the fiat money and economic
uncertainty? We publish The Gold Speculator to help people make
better decisions about their money. Our Model Conservative Portfolio has
outperformed the DJIA and the S&P 500 by more than 3:1 over the last
several years. Follow @TheGoldSpec
Subscribe at our web site www.thegoldspeculatorllc.com with credit card or PayPal ($300/yr) or by
sending your check for $290 ($10 cash discount) The Gold Speculator, 614 Nashua
St. #142 Milford, NH 03055
No comments:
Post a Comment