Saturday, January 29, 2005

Excellent risk/reward point

Within the USD's expanding megaphone pattern, what could be developing right now is a right hand shoulder to a short, maybe 2-3 weeks long, head and shoulder topping pattern. After all, the USDX's prices are right up near the top of the megaphone. Friday the USDX went up but then retreated down. Still that intra day high could be the beginning of the right hand shoulder. The possibility can be seen in this chart:
The March USDX futures chart
It is something to watch for.

Is there anything else that tends to support this possibility? Here is something. In November of last year gold peaked at about $451 with open interest on the COMEX futures exchange at about 370,786 contracts. Historically there has been this massive reduction in open interest at this point, down to about 257,914. A reduction of 112,872 contracts. But, gold is down to only about $426. Historically, gold should be down a lot more with that type of huge drop in open interest.

Anything else? Yes, usually on the daily bar charts gold and silver move inversely to the USD. 2-3 weeks ago that stopped. All three, the USD, gold and silver are moving up slightly. Despite the USD moving up, gold and silver are moving up, too.
Here is a gold chart
Here is a silver chart

The USDX never did make anything but a dead cat bounce once it hit the old 1995 low support level 2 months ago, and it hasn't done anything particularly bullish since.

One more thing to keep in mind. There has been a fair amount of articles in the mass media about the bad financial and economic fundamentals of America and its USD. Some people take these bearish articles to be a contrarian indicator, that the USD might be putting in a significant bottom here. I do not look at these articles this way. "Price Action Makes Market Commentary.". This is a market principle to keep in mind. What price action caused all this market commentary? I would say it was the USDX getting down to the 1995 low of about 80 two months ago. This is quite significant so I think it is natural for there to be all this bearish commentary since there is some USD history in the making here but do not see it as a contrarian indicator. The USD still has a lot to go on the down side since fundamental financial/economic things for America and its USD are a lot worse since 1995.

Even one more thing. Ted Butler follows the COMEX commitment of traders statistics like open interest, etc. for silver. He is saying right now is another "mother of all buy points", "pennies to the down side, dollars to the up side". A great risk/reward situation in silver to go long.

Yes, 2005 is looking good.

"It is important to know the similarities between the Jelly Fish and Traders. Jelly fish really have no brain and still swarm." - or a lot of trading is not too cool. You will probably end up giving too much to the vig or vigorish.

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