Gold has produced a small Reverse Head & Shoulders formation with some possibility of being interpreted as a small Diamond Formation in the over-sold territory.
That means "Good for the Bull." It also means that there has been an internal shift within the price of gold whereby the weakness has subsided and strength entered the picture. This is the mechanism that produces price movement out of a downtrend and back into an appreciating price series.
I told you today that I significantly increased my position but did it in a bull option spread because we are still within the confines of a downtrend. That being the case, I sought out a defined risk but significant profit potential method of increase, assuming that the price of gold is ending its down-trending phase. I do assume that.
I also believe that the gold bears will not be able to keep the pressure on gold until August 4th which would complete the 8 week Ratio Gold Spread Cycle. The ratio trade is finished and the strength of the leading gold shares shows this.
Euro
The decline in the Euro has, IMO, ended. It occurred to the degree it did because of over participation in this trade. Now that the weak hands have been shaken out of the Euro, I believe, the Euro is on its way to the original price objective that I offered you months ago of 1.21 to 1.23 which will represent the over-bought side of the new up channel presently in construction.
US Dollar
The US dollar made four minor penetrations into the oversold side of a Bearish Rising Wedge as it proceeds to conclude this so-called rally. A tic-up thanks to the Exchange Stabilization Fund is my bet prior to the end of the US trading day followed by a move below the rising wedge. That would be the wooden stake in the heart of this so-called rally.
If I am wrong, it will simply take a little longer for the US dollar rally to conclude along with the trip start to minus .9200. There are simply too many dollars for sale in the .9500 to .9525 area that will be reduced in price to meet the bid sometime soon.
It is possible that the most important note I have written to you is yesterday's memo on the exact numbers from the Saint Louis Fed which proved beyond a doubt that the Federal Reserve is NOT accommodative in terms of monetary aggregates.
The Beginning of the End of the Downside Reaction?
Surfer
95
01-07-2003 18:44
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