Gold Finds Support
By Colin Twiggs
October 28, 2008 5:00 a.m. ET (8:00 p.m. AET)
Spot gold made a failed break through support at $700, reversing within a few hours, before rallying to test resistance at $750. The subsequent down-swing respected support at $700 and was followed by a rally that broke the downward trendline; both bullish signs. Breakout above $750 would test the band of resistance between $815 and $820. The primary trend remains down, however, and reversal below $700 would warn of another down-swing to test the June 2006 low of $550.
In the long term, the broadening descending wedge displays both a failed up-swing and penetration of the lower border, indicating that a test of $550 is likely.
West Texas Intermediate Crude is in a strong downward trend channel, now testing support at $60. Failure would test the 2007 low of $50/barrel.
Upward breakout from the trend channel is less likely and would indicate a bear rally to test $77 — possibly $85. But the primary trend remains down, driven by expectations of a global recession. OPEC production cuts of 1.5 million barrels a day have had no effect so far and further cuts may be necessary to support prices.
The euro found support at $1.2350 and is now testing the new resistance level at $1.25. The tweezer-shaped bottom is a bullish sign and breakout above the downward trendline would suggest a bear rally with a target of 1.2750, possibly $1.30.
The primary trend is down, however, and a test of the 2005 low of $1.16 remains likely in the longer term.
Unwinding carry trades are causing the yen to strengthen. The dollar broke through support at 96, signaling a test of the 1995 low of 80 against the yen.
The Australian dollar found support at $0.60 against the greenback, retracing to test the new resistance level at $0.63. The RBA stepped in, buying dollars to support the little battler, but may still be swamped by large capital flows. Upward breakout is unlikely — and would test the medium-term trendline at around $0.6800.
The primary trend remains down and further weakness may restrict RBA rate cuts. Expect rising import prices to cause an inflation spike. Breakout below $0.60 would test the band of support between $0.4800 and $0.5000, the 2001 lows.
The Aussie is already testing its 2000/2001 low of 55 against the yen. Failure would leave the yen in blue sky territory — and the Aussie at the bottom of the harbor. I have no way of calculating a target if this occurs, but further falls would be unimpeded by support levels.
Expect the best. Prepare for the worst.
Capitalize on what comes.
~ Zig Ziglar