John Lounsbury's  Instablog

There are calls to prepare to short gold. See for example the article today by Quandry Fx and an article yesterday at Zero Hedge about the negative call on gold by Goldman Sachs.

A chart today on the 5 Min. Forecast raises a significant question: What is the support level for the price of gold?

This abbreviated chart leaves the impression that the current position of the price of gold is like that of a man after a hanging waiting to be cut down. That would allow the golden corpse to drop to ground level, somewhere about $120 lower than the last price shown on the chart above.

Based on this graph alone a break of gold below the $1678 level (indicated by dotted line in the graph) greatly increases the possibility that the "cut down" will occur.

In that event, the 5 Min. Forecast has the following quote from Greg Guenthner:

"If gold gives back all of its gains since the summer and thinks about retesting $1,550, then it might be time to start questioning its multiyear uptrend."

Taking a longer view, let's look at a 20-year perspective with a graph presented last year:

(click to enlarge)

Taking a longer view, say five or ten years as done in the graph above shows support levels for gold near $1,200 and below $1,000.

The speculation that the bull market for gold could be ending is not on the strongest footing until the 5- and 10-year trend lines are broken.

Until the long-term trend lines are violated, buying gold on dips is a strategy that should be considered, negative calls to the contrary.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Technical analysts love flags because they force a decision. Sometimes. When a price reaches the point of a flag either resistance or support are broken (in some cases) or both are broken (in the remaining cases) and the roles of support and resistance are reversed.

In the first two occasions, indecision is removed from the chart and a bullish or bearish posture is resolved from the previous indecision.

The time of decision is approaching for the KBW Bank index, shown in the following graphic from www.Chartoftheday.com.

After the price passes the point at which the red and green lines cross there are three possible situations:

1. The price remains above the green line (the red resistance is broken) - resolution is bullish.

2. The price remains below the red line (the green support is broken) - resolution is bearish.

3. The price moves above the red line and below the green line (both support and resistance are broken) - resolution is indeterminate until new support and resistance lines can be defined.

An annotated chart is shown below.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

It is not as big as the housing bubble, which reached a value of well over $10 trillion, but the student debt total is still significant. It surpassed $1 trillion over a year ago and is now estimated to be about $1.05 trillion.

The following graph from the 5 Min. Forecast indicates that about $115 billion of the outstanding student debt was delinquent as of the end of September.

The increase from June 30, when the rate was less than 9%, was about $22 billion. That is an increase of nearly 24% in just three months.

That seems to be obviously unsustainable, amounting to a 100% compound rate of growth over 10 months. If that rate compounded for 34 months the entire $1.05 trillion now outstanding would be in default.