Point & Figure Roll Call

Boy, that was quite a week! We’ve finally got some movement and may I say – just about in time. Those summer doldrums are my least favorite period of the year and I’m glad we’re now heading into fall. September usually brings along some fireworks and the fun continues well into spring. To make sure we are well prepared on all fronts let’s revisit our collection of long term charts. To cover all the bases I’ll show you P&F and LT chart combos.

Just about a month ago that bullish price objective  of 1780 on gold sounded rather outlandish. But after a streak of nineteen 10-point boxes we have now met our target. Once again point & figure charts cut through the noise and continue to deliver.

I want to introduce a new convention which I plan to use on my P&F charts going forward. Note the 1680 row highlighted on the chart above – since we had a bullish PO this signifies how low we would have to drop in order to signal a high pole reversal warning. In the future I will abbreviate that with HPRW. On the downside it’s called (you guessed it) a low pole reversal warning (LPRW).

The monthly panel is rather interesting right now – here you can see the entire past decade. Once you strip off all the hype and all that useless talk about gold not being eatable it’s a rather stunning chart. Within one decade we have gone from barely over $300 an ounce to over $1700. So had you buried a few ounces of gold in your backyard a mere decade ago then you would have banked some mighty coin doing exactly nothing- at least on paper. In reality this chart is a vivid reminder of how the purchasomg power of the Dollar continues to be destroyed systematically.

Beyond those general observations we do however have a monthly NLBL being tested right now. Should it hold until October then we will have a brand spanking new buy signal that (judging by prior precedence) should eventually lead us much higher. Should it fail then we may still see a repeat of the 2008/2009 correction. Back then we tested the NLBL but then dropped below it. Many gold bears expected a third wave to the downside back then but what they got served instead was a delayed short squeeze a month later after the monthly NLBL had expired. In essence – there are not too many reasons to be long term bearish gold right now. And given recent FOMC and ECB announcement gold remains to be a great hedge against mutual currency debasement on both sides of the Atlantic.

Closely related are the 10-year treasury yields. The current floor pattern since June is reminiscent of what we saw on the EUR side just a few weeks ago. Last Friday we triggered a double top break-out and if it holds we may be heading toward our new bullish PO of  2.55.

The 10-year futures contract (ZN) of course runs inverse and has now descended into monthly NLSL support at 131’280. Should it finish September below that level then things could get really interesting on the treasury side.

Here’s a pertinent chart I came across on soberlook.com – one of the few sources I frequent on the fundamental side. Although yields are rising now they apparently are not even keeping up with inflation expectations:

Longer dated treasuries have touched the lowest real yield level on record because the rising yield is not keeping up with rising inflation expectations. Those holding US government debt are now expected to be losing nearly a percent per year when inflation is taken into account. It’s difficult to comprehend how a money manager (including institutional investors) with any sort of a fiduciary responsibility be long treasuries at this point. Yet many still are.

You can find the full post here. Quite a bit more where that came from – please step into my lair:
[amprotect=nonmember] More charts and non-biased commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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The Australian Dollar triggered its own double top break out on Thursday. This now opens up the door to a new bullish PO of 114.9 – that would be quite a move. HPRW would be triggered near 104. Again, recall that these are long term charts. Even if the Dollar strengthens this chart is not in trouble until we drop below 104.

Even more exciting on the trading front are both the weekly and the monthly panels. As you can see we are touching a weekly as well as a monthly NLBL. If we start trading above the weekly then we would have to hold that level until the end of the month. Bear in mind that the monthly NLBL expires at the end of November. A failure here would establish new resistance and probably lead us much lower. So it’s do or die here for the Aussies.

Crude – Friday apparently was an eventful day as it also triggered a new buy signal on this P&F. The bullish PO continues to be 109 – it’s been in place for a while now.

The weekly chart now shows us firmly establishes support near the 95 mark. I don’t see much in the way of more upside here, except maybe that monthly NLBL near 105.5. Well, let’s talk once we get there.

The Euro (shown here FXE) has been on a rampage – and trust me, I’m feeling it in my exchange rate, much to my chagrin. Our bullish PO of 129 has been met now and it’s possible we may see a bit of a correction here soon.

The weekly EUR/USD panel however seems to disagree here as I don’t see any resistance until about 1.4 (scary). Interestingly the 100-week SMA and both monthly SMAs are coinciding there which strongly suggests that a push to 1.4 would be followed by a correction. Again, let’s talk again when we get there.

Since we’re talking about the demise of the Dollar – here’s the pertinent chart. The next best support level on the DX is the 100-w SMA near 78.4. If that does not hold then we could see a slide all the way into 73. Not that it matters – by the time Joe Sixpack wakes up to $5 gasoline the presidential elections will be long over. I truly fear things may get very ugly for ole’ bucky here. As this affects us all outside our trading activities I encourage you all to hedge yourself properly should important support levels fall the wayside. Again, gold or silver may be the simplest way to stave off the FOMC barbarians. But let’s first see if bucky can dig in its heels here – I will be watching 78 very carefully and will post an update should things start getting ugly.

Copper – very bullish looking chart. And it was about time as it has been lagging equities all year. We have now practically satisfied our bullish PO and the question is whether or not we continue higher.

In this case the weekly and monthly panels provide a bit more context as we seem to be running into resistance on two fronts. There’s a 100-w SMA near 3.9 which almost exactly coincides with the 25-month SMA. Above we have a bit more room until we touch a new monthly NLBL at 3.9345 (it’s been a long time since we even got close). So it’s fair to say that it will probably take a bit of time to slice through all that. A failure here would probably lead us much lower as this could be a third wave down – on the flip side it could also be some motive wave to the upside, so once again we find ourselves at an inflection point.

Finally the SPX – the traditional P&F settings are showing us a bullish PO of 1550. I don’t think we’re going to get there in one straight line, especially after that series of boxes we just completed. It would take a drop all the way into 1410 to question the current anti-gravity conditions courtesy of double whammy QE policies favored by the Fed and the ECB.

On Friday I already pointed out that we are now touching monthly resistance. Frankly I have no idea when we are going to reverse here. Things have been running on fumes and although this often suggests a reversal to many fledgling traders I have learned the hard way over the years that the bus moves fastest once everyone got off. Short squeezes happen and that’s been the repeated pattern we’ve been seeing on the equities side. If you are a trend trader then there are few reasons to think about the downside until we see real weakness. The best opportunity for that was this summer and the best the bears could muster up was a sideways correction. So let’s not over think this and stick with our charts. To quote ole’ Turkey: It’s a bull market, you know!

Cheers,