This week’s chart of the week is actually 3 very important charts with 3 very important messages for market participants. We will be looking at gold, copper, and the gold miners. All three have one thing in common – they were unable to hold important support levels. In other words, where we would expect buying, we had selling, and when the markets do something we don’t expect, our antennae should go up.
Our first chart is a weekly chart of a continuous gold futures contract –symbol @GC.C.
The red and black dots on the chart are key pivot points which are the best areas of buying and selling or support and resistance.
This is your 40 week moving average.
Gold closed resoundingly below the 1592 support level, and to put it simply, a close below 3 key pivot points is a bear market until further notice. This is fairly consistent technical finding across multiple asset classes. Fake outs and reversals do occur, so remain vigilant for such an occurrence as such reversals tend to lead to monster moves.
Hard to believe that gold is in a bear market especially when you consider the money printing schemes that central bankers have conjured up. But is this lunacy coming to an end? This week’s FOMC minutes seem to indicate that QE to infinity may only last through 2013; of course, I will believe it when I see it. For now, there is no reason to try and catch a falling knife. Buying the dip – the best strategy in any bull market – has failed. Price failures are noteworthy and should be respected.
For gold, old support becomes new resistance. A weekly close above the 1592 level and the bull market is back on at least on a technical basis. Fundamentally, the dynamics for gold appreciation have been negative for nearly 2 months. Essentially, rising Treasury yields have historically been a headwind for the precious metal.
Our next weekly chart is the Market Vectors Gold Miners ETF (symbol: GDX). Support levels gave way two weeks ago when price closed below the 41.83 level. These key pivot points and positive divergence bars should have been an area of buying. But a failure of buyers to emerge has seen prices accelerate lower. I would be careful about trying to catch this falling knife.
Our last chart is a weekly chart of a continuous copper futures contract. The breakout at the 370 level seem to coincide with the exuberance that everything will be ok in the global economy and that we have entered a great moderation. Ooops!! Wrong again!!! Copper not only has failed to hold this support level but it actually gapped below this level to close below its 40 week moving average. This is bearish. Failed breakouts are bearish.
What does this breakdown in copper, the industrial metal with a PhD in economics, say about the global economy? It probably isn’t positive going forward. If so, this is why I would keep an eye on gold. The only tool policy makers seem to have in their arsenal to stimulate growth is currency debasement. If growth weakens, I would expect more of what we have seen over the past 4 years, and this will be gold positive. It is hard to believe that the current can kicking policies, which are so singlemindedly held to by policy makers and market participants as a core belief, would go away so quietly.
Want more TacticalBeta? Subscribe now to get premium access.