This Is All It Takes Right Now
As I have
mentioned in the last few articles, gold stocks appear to be taken a
breather, albeit they continue to hang in there, indicating just how robust this
sector is. My main edge intra-day with gold stocks has been the
DXC in helping me refine my entry points.
As we all know the DXC has been gaining some
upside momentum as of late, which partly explains the gold stocks somewhat weak
performance. Is there more upside for the DXC
in here? Tough call, technically it still looks horrible, but there may be some
non-technical forces at work which may make gold stocks vulnerable and volatile
over the next few sessions. Consider this quote from IDEA Global Research:
“Using NYBOT open
interest figures as our guide, we estimate that the large CTAs are already
losing money on the majority of their short USD Index trades established after
Dubai. The important issue is that we have not seen much large liquidation of
short USD index positions over the last week, arguing the USD Index is still at
risk to a significant corrective bounce.
Over the last 18
months, open interest (OI) on the USD index has established an 11K to 21/22K
range, with OI highs representing a large USD Index short position from the CTAs,
which dominate this exchange. Noticeably, late October USD Index selling saw OI
punch up to 25K, arguing extremely short USD index positioning.
Looking at the OI
data, we can see the large CTAs were big sellers of USD Index futures on the
following dates (USD Index open on the day in question in brackets). Sep 22
(93.88), Sep 23rd (94.04), Sep30th (93.23), Oct 14th (92.10) and Oct 22nd
(92.32). The largest trade of those dates was Sep 30th, followed by the trade on
Oct 22nd, when OI rose 2457 contracts.
With the USD
Index trading up to 93.87 yesterday and now at 93.56, the large CTAs will now be
underwater on all their positions apart from those initiated right after Dubai
on Sep 22/23. With OI still very high at 21.3k as of Friday and Finex contacts
today suggesting the large CTAs have not done much the last 48hrs, we see risk
of some very large covering of USD Index shorts – especially were USD Index to
trade over the 94.40-94.73 gap left after Dubai.”
Just something
to keep in mind. You will notice that the
DXC
on a 5-minute basis has been erratic. This to me appears to be signaling a
consolidation or imminent trend change, only time will tell. One thing is for
sure, until the DXC
rights itself in terms of becoming more fluid, gold stocks, particularly
NEM,
will be tough to intra-day trade.
Keeping with
the DXC
theme and the recent strength in the Dollar, I saw this email that was posted on
Richard Russell’s site last night. While I tend to avoid the “pointing fingers”
game when it comes to trading and investing, policy changes can have an impact
on market direction.
Richard,
One of the best gold analysts in the business (John Doody – “Gold Stock Analyst)
has raised a concern about a move in the US Congress. The Senate has approved,
and the House Ways and Means Committee is evaluating, a special piece of
legislation that would open a one-year tax break window for US multinationals.
This window would allow them to repatriate overseas earnings which had been
taxed at the foreign rates, back to the US at a tax rate of only 5% compared to
the existing 34% rate. Presumably, this act is designed to send a huge flood of
repatriated dollars back into this country to be used to stimulate domestic
investment and job creation. Note that the term would cover only 2004, (election
year coincidence??). JP Morgan estimates that the dollar amount would range
between $135 and $300 billion. If this is the case, the multinationals’ foreign
currency holdings would have to be converted into dollars for repatriation. This
would put a huge prop under the dollar, perhaps sending it higher, and reinforce
the Bush administration’s so-called “strong dollar policy”. Maybe this is one
reason the dollar has remained relatively strong over the past several months,
defying predictions of a steady decline.
Doody concludes that such an election year gimmick could have a distinctly
negative impact on the gold price, insofar as it trades inversely to moves in
the dollar index.
Just though this tidbit might be of interest to your readers. When an analyst of
Doody’s caliber raises such a concern, I tend to pay attention.
Turning to today’s
market action/inaction, let’s face it, this market needs help in the
range/volatility department. With the exception of the opening hour, it has
been pretty darn quiet. The market feels like a wounded soldier simply pushing
on, no amount of good news appears to be giving it that much needed shot in the
arm, yet every pull-back, is bought. There is no sense getting worked up about
it, it is simply not the most conducive market for short-term trading presently,
however, as I have said hundreds of times, if you choose one or two stocks and
focus intently on those each morning, you will discover excellent set-ups where
risk/reward is well balanced. Two to three trades in the opening hour is all it
takes presently, do not fight beyond that until things loosen up. I checked in
with my Day Trading Rule Book just to confirm that there are no
rules that stipulate you must be chained to your computer after 8 AM PST.
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As always, feel free
to send me your comments and questions.