GOLDTRADER'S GROUP (NEW BLOG): Dec 29, 2009

Tuesday, December 29, 2009

DAN NORCINI'S COMMENTS AND CHART

DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2009/12/December2909USD-Dan.pdf

OR GO TO JSMINESET.COM

Trader Dan Comments On The Talking Up Of The Dollar Posted: Dec 29 2009 By: Dan Norcini Post Edited: December 29, 2009 at 8:32 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
There is quite a bit of chatter making its way around the internet and the various financial sites where the Dollar is being talked up, which of course means a corresponding top in the gold market.
Such talk is quite premature given the weak technical posture of the Dollar. It is a fact that price action makes market commentary and not the other way around. In other words, market bears are at their loudest when prices are falling and market bulls are at their loudest when prices are rising. During such times, the dissenting voice is typically ignored until such time as the market reverses direction whereupon the convictions of most if not all are jettisoned in favor of the “new trend”.
Trading or investing for that matter requires one to be objective if they hope to actually profit since markets care little if nothing about our respective opinions. They will leave your broken body in the dust of an adverse price move and never even pay you the courtesy of a visit to see if you are okay.
That being said, an objective view of the Dollar’s weekly chart shows a market in a firmly entrenched bearish posture with a recent bounce from a short term double bottom near the 74 level. Seasonally, the Dollar tends to slide into the end of the month of December so this year’s rally has been contraseasonal. Even at that however, its rally is not particularly impressive given the fact that it has yet to take out the downtrending 40 and 50 week moving averages. While the 10 week has turned up and is very close to making a bullish crossover of the 20 week, which also is moving lower, the longer term trend is still intact.
Look back at the June-July 2008 time frame when the credit crisis first hit in full force and there was a mad rush of deleveraging and money flows back into the Dollar. Note how the shorter term moving averages (the 10 week and the 20 week) both went on to cross above the 40 and the 50 week moving averages which also turned up in late August, early September of that same year. Such an occurrence is the confirmation that a trend change is in place.
Compare that time period to the current one and notice how the Dollar has thus far been unable to best the level indicated by the heavy blue line on the chart that marks last week’s high. That level happens to also correspond to a low made back in December of 2008. It also is quite close to the low made in the late spring of this year. Both of those levels are centered around the 78.70 – 79.00 region.
In technical analysis there is what we term the “reverse polarity” principle. What this means in English is that former levels of support, such as what we see back in December 2008 and June 2009, become resistance levels when once broken to the downside. In other words, just as they formed regions where buyers were quite active previously, they then “reverse polarity”, or attract sellers when price moves back up to test them from the downside. In this case, this level has currently stopped the Dollar’s rally in its tracks.
Before I would become too excited about the Dollar’s prospects, I would need to see a weekly close above this level but even more importantly, I would want to see all of the major moving averages turning up and moving higher with the 10 week and the 20 week moving above the 40 and 50 week. Another way of saying this is that Dollar bulls have not yet proved that they are capable of beating back the selling that is originating at last week’s high. Until they do, the longer term trend is still bearish even though I am the first to admit that the bears were unable to break the double bottom support near the 74 level.
Price then rebounded away from that level with analysts looking for a reason to explain the move higher. The concerted opinion has now emerged that the US economy is on the mend and the next move by the Fed will be to raise interest rates, thus supporting the Dollar. Again, market action makes commentary.
Personally I believe that any such expectation of an increase in interest rates is unjustifiable nonsense. Much of the improvement in the numbers coming out for the US economy is the result of government expenditures. That is unsustainable. Everyone knows that except perhaps the current Administration and the political leadership of the Congress which believes that the more debt that is created the more prosperity follows.
Short term noise often tends to obscure the longer term realities and the fact is that the US is now firmly on the path to financial decline unless an abrupt, about face occurs in regards to our economic and fiscal policies. I have said it before and will say it again; if all that was necessary to produce lasting prosperity was to ramp up the printing presses and borrow like a banshee, nations of the past would have figured it out long before we did and would have successfully implemented it. That those nations that have attempted to do so are now in the ashbin of history or learned enough to avoid doing so again, is proof enough that it is a foolish, irresponsible and destructive path to take.
The first month or so of the New Year will help us to better define this chart and know what to expect for the first half of 2010 in regards to the Dollar. In the meantime, those who have called a top in gold will find out their words had best been written in the sand, rather than in stone, as it will be a might bit easier for them to wipe them away as we move further into 2010and the pigeons come home to roost.