Thursday, December 18, 2008

Oil, Gold and Dollar Charts/Discussion

Oil Weekly Chart: Oil is in a historic, massively oversold condition that looks to be finding a bottom.

I would suggest, based on huge OPEC production cuts of late, when combined with the recent "significant" downturn in the dollar's value (bottom two charts), prices wont stay down here for too long. Once the black PPO line (top right of chart) begins an upturn, you can likely expect to see a quick rebound in prices.

Gold Daily Chart: The US is currently undergoing a significant bout of (depressionary) deflation and with increasing unemployment figures, reduced credit availability and a maxed out population, these deflationary pressures are quite likely to get far worse over time.

A very concerned Federal Reserve, acting in desperation, has recently pulled out all stops in their quest to stop/reverse these deflationary pressures - before they spiral out of control. Recent implementation of ZIRP policy, when combined with the announced plan for a future Monitization Program (printing money to buy huge sums of debt) has investors correctly worried about 1) the long-term implications these activities will have on the future of the US dollar (the world's reserve currency) and 2) the potential this creates for igniting a new run up in inflationary pressures.

Thus the flock to gold as a long term safe haven - A store of value as people begin to lose faith in the future purchasing power of the dollar.

Note the chart of Gold below and how prices recently crossed the 200 Day Moving Average - a very good sign. Additionally, the PPO is positive and risng - another very good sign.

Now, that's not to say we won't see another price pullback - anything is possible these days, but as long as we stay above the last low of $741, gold remains in good shape. What we ultimately want to see is continously higher highs and higher lows upon each turn (up or down).

US Dollar Weekly Chart: The strong dollar run-up through November was caused by massive global deleveraging, a flock to safety and a few Plunge Protection Team (PPT) taxpayer funded tricks, but as the fed grew ever more concerned about growing deflation, he emptied his arsenal (ZIRP + highlighting a future monitization program) and dollar values QUICKLY cratered on anticipation of future inflation. Again, for those who don't really understand: Consumer inflation is merely the end-result of expanding a nations money supply. The increasing number of fiat dollars created by the fed (created from nothing) end up fighting for the same number of goods and services, increasing consumer costs by devaluing the currency's purchasing power. (more dollars chasing the same # of goods/services).

Note the dollar chart below. PPO is falling fast and the Dollar's value is quickly approaching and will likely soon slice through its 40 Week Moving Average.

Based on the historical downtrending pattern of this chart, I foresee a new "ALL TIME LOW" being reached quite soon - likely ~ 66-67 (maybe lower).

With all this said and before calling it a night. Futures are currently pointing to a lower open tomorrow (DOW Down 56), but no economic reports are due - which leaves the PPT in a pretty good position for manipulating the markets towards a positive close.

On the other hand, tomorrow is a Quadruple Witching day - A day on which contracts for stock index futures, stock index options, stock options and single stock futures (SSF) all expire.


On quadruple witching days, and especially during quadruple witching hours, many investors attempt to unwind their positions in their futures and options contracts before the contracts expire. This activity frequently includes repurchasing contracts and closing out other positions meant to hedge against these contracts.

Why It Matters:
Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume. As a result, investors can anticipate and plan for the potential effects of these relatively turbulent trading days.

Have a great evening



Chris said...


Interesting stuff going on with the USD these days. The weekly chart looks to be collapsing. More interesting, though, is what I see going on in the daily chart. I see a possible massive head and shoulders top in the process of forming right now. Interestingly, the downside target for this would be 64 over the next few months, close to your targets of 66-67. I do not think I can post pictures on the comments section, so here is a link where I've posted the formation that I think is close to completing now.

This is of course just based on my limited technical analysis, but I'd like to know what you think.

It is the first image at the top of this blog, which I typically only use to post charts for friends:


Randy said...

Nice chart Chris. I believe our thoughts regarding the short-mid term Dollar are very similar.

Much appreciated