Gold and dollar test support

By Colin Twiggs
October 31st, 2012 11:30 p.m. ET (2:30 p:m AET)

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The Dollar Index (daily chart) broke medium-term resistance at 80 before retracing to test the new support level. Penetration of the descending trendline indicates the correction has ended. A long tail on Wednesday indicates (short-term) buying pressure; respect of support would signal an advance to 81. But the primary trend is downward — reflected 63-day Twiggs Momentum oscillating below zero — and breach of support at 79 would signal a decline to 75*.

* Target calculation: 78 - ( 81 - 78 ) = 75

Still on the daily chart, spot gold found short-term support at 1700, penetrating the descending trendline. A stronger dollar would suggest further gold weakness but the $DXY primary trend remains down. Expect another test of $1700 but respect would signal a rally to $1800 per ounce*. A 63-day Twiggs Momentum trough above zero would signal a primary up-trend, while breakout above $1800 would confirm.

* Target calculation: 1650 + ( 1650 - 1500 ) = 1800

The DJ-UBS Commodity Index (weekly chart) reflects an easing inflation outlook, breach of medium-term support at 145 signaling a correction. A 63-day Twiggs Momentum trough above zero would suggest a primary up-trend, while a fall below zero would mean further weakness.

Brent Crude (weekly chart) is testing support at $108 per barrel. Breakout would indicate a decline to $100. Reversal of 63-day Twiggs Momentum below zero would strengthen the bear signal.

* Target calculation: 108 - ( 117 - 108 ) = 99

Nymex WTI Light Crude is falling faster, headed for a test of primary support at $76/$78 per barrel. A 63-day Twiggs Momentum peak below zero warns of a primary down-trend.

Here's the essence of risk management: Risk no more than you can afford to lose, and also risk enough so that a win is meaningful. If there is no such amount, don't play.

~ Ed Seykota