Gold threatens correction

By Colin Twiggs
March 17th, 2011 4:00 a.m. ET (8:00 p:m AEDT)

These extracts from my trading diary are for educational purposes and should not be interpreted as investment or trading advice. Full terms and conditions can be found at Terms of Use.

Gold

Gold broke support at $1400, warning of a correction to test primary support at $1300. Respect of the new resistance level (follow-through below $1380) would confirm. A Twiggs Momentum (21-day) dip below zero would strengthen the bear signal, while respect of zero would indicate another advance.

* Target calculation: 1420 + ( 1420 - 1320 ) = 1520

Strong bearish divergence on GLD 13-week Twiggs Money Flow reinforces the bear signal.

US Dollar Index

Gold's normal relationship with the US Dollar has inverted, with the Dollar Index testing primary support at 76. Breach of primary support would offer a target of 71*. Respect is unlikely, but would suggest a rally to 81. Likewise, Twiggs Momentum recovery above zero would complete a bullish divergence, suggesting the start of a new up-trend.

* Target calculation: 76 - ( 81 - 76 ) = 71

Silver

Silver broke its rising trendline, signaling a correction to test support at $33.

* Target calculation: 31 + ( 31 - 27 ) = 35

Crude Oil

Nymex WTI is falling sharply, headed for a test of primary support at $84. A typical blow-off.

* Target calculation: 85 + ( 85 - 65 ) = 105

Commodities

The CRB Commodities Index closed below its lower trend channel, warning that the trend is losing momentum. The Australian Dollar is also losing momentum.

Euro

The euro continues in an upward trend channel. Respect of support at $1.38 would signal another advance, targeting the upper channel border. A Twiggs Momentum trough above zero would strengthen the bull signal.

* Target calculation: 1.3850 + ( 1.3850 - 1.3500 ) = 1.4200

UK Pound Sterling

The pound is testing support at $1.59. Failure would test primary support at $1.53. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Recovery above $1.63 (162 on FXB) is unlikely, but would signal an advance to the 2009 high of $1.70*.

* Target calculation: 1.62 + ( 1.62 - 1.53 ) = 1.71

Japanese Yen

The dollar is weakening against the yen, breaking long-term support at ¥80. The immediate target is ¥76*, but be wary of intervention by the BOJ to assist Japanese exporters.

* Target calculation: 80 - ( 84 - 80 ) = 76;

Australian Dollar

The Aussie dollar broke medium-term support at $1.00 and is testing $0.98. Weakening commodity prices warn that the primary up-trend is losing momentum. Recovery above $1.02 would offer a target of $1.08*, while failure of support at $0.96 would signal a primary down-trend.

* Target calculation: 1.02 + ( 1.02 - 0.96 ) = 1.08

Cruelty is the law pervading all nature and society;
and we can't get out.

~ Thomas Hardy (1840 - 1928)