John Rawlins share some long-term plays in the commodity sector....
Danger Signals for Oil and Gold
03/14/2011 11:08 am EST
These formerly hot commodities have lost momentum of late, setting up a correction once the broader market rolls over, writes Curtis Hesler of Professional Timing Service.
I feel the urge to buy the strength in gold like everyone else…but in the long run, investing emotionally will only lose you money.
So, I am trying to find some technical reason to tell you to bet the farm on this gold move—but, bottom line, the evidence is simply not there. At this point, gold is not a “breakout.”
The best I can say is that the recent posting of a modest new high is only a tease. The $1,441 high in the April gold contract lacked conviction and follow through. MACD is overbought, and RSI (along with being overbought) evidences troubling negative divergences.
[The MACD is Moving Average Convergence/Divergence, a technical indicator of a stock’s momentum that compares its exponential moving averages over different time spans. The RSI is the Relative Strength Index, another momentum indicator based on recent price changes—Editor.]
The one good thing is that the positive Critical Price Point, CPP, in gold was hit on March 1, and this short-term trading model is officially long now. Keep your eye on the next reversal number, which is $1,309.00 in April futures.
Fools Jump In
I cannot say in good conscience that you should jump in here. The set of highs that built up between May and July 2010 look similar to the current situation. I am not expecting any big thing on the downside.
Solid support appears to be $1,320, and that should stem any selling gold experiences. That would, of course, keep the CPP model from turning negative again. We still need to see some selling to fill these objectives.
Energy is running away also, and I refuse to chase strength and mindlessly throw money into a black hole. I am unwilling to put money at jeopardy, and chasing strength at this point is doing just that. We need to wait for an investment opportunity. If you want to gamble, there are casinos…but remember that the house always wins.
The Palio short-term, momentum-based trading model is still long, but it is becoming easier for a sell to be generated. If the stock market sells off, you are going to see a rush for cash, and the selling will include profit taking in the metals and energy.
No Safe Haven in Energy
Energy will surely see a sell-off, along with the stock market, as investors perceive weakness in the averages as an omen of future economic contraction and reduced demand for energy. That logic doesn’t hold up because energy is a global product suffering restricted supply problems.
The sellers will be there nonetheless—temporarily.
A rush for cash will also include profit-taking in gold and silver, to some extent. The big kids will seek dollars and buy Treasuries in order to seek a “safe haven.” My caution here is not meant to be a look into the future, but merely a warning as to what is very possible this spring.
The markets are all overbought and need an excuse to cool off, and those “markets” include metals and energy. This is not an ideal time to place new money. If you have been following our strategy, you are invested.
In accordance with the advice given in the last letter, it is time to “hold ‘em.”
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