Simit Patel's  Instablog

Below is the AUDUSD weekly chart I'm watching closely. I'll re-evaluate if we can get a break above the two week high of .9327, or if we get a pullback on the hammer down to around .9050, where the 5 EMA on the weekly chart is.




I'm also watching $1050 price level on gold. When AUDUSD breaks above 9327, I'd like to see gold above $1,050.

Fundamentally, the argument is the same as always; the dollar is in trouble and current monetary policy is reinforcing those woes, and the carry trade with the higher yielding Australian dollar is on. See my blog for more on those arguments.

$1050 is a key gold support level I'm watching. We recently had a bounce off it. To preserve the strong upward trend in gold, I would like to see this support level hold. the next support level after this is $980.

to the upside, my next target is $1250, however I will be looking more closely at price action for signs of exhaustion in the bull trend.

I've been playing AUDUSD a lot this year, as I'm bullish on it on a three year outlook, and looking to ride an upwards trend.

I entered a long position at 8827 with a stop 300 pips out. Profit target is about 1,000 pips. This is based on the weekly AUDUSD chart.

The rationale here is that price has broken above the double doji on the weeklies. Moving averages are still aligned and "big picture" fundamentals remain supportive, further indicative that the bull trend is still in tact. 

I'm only half in, as I'm still waiting for a pullback, which I think is quite likely. If/when it occurs, I'll put the remaining half in. However I wanted to get half in now in the event a pullback does not occur.

Just a quick note I wanted to make about what I am thinking in preparation for October -- a month notorious for volatility and market crashes.

1. Currently, I'm still long gold, silver, and the Australian dollar against the USD (trades documented in my trade journal). These trades have been working out very well for me. Regardless of what happens in October, I'm confident about them.

2. We're coming up on the 50% retracement level from the US equities crash in October 2008 (as noted in this recommended video and dicussion). This will be a key break or bounce level, in my opinion. Look for the 50% level on both the S&P 500 and the DJIA.

3. Non-US equities, in my opinion, remain safer than US equities. Many non-US equities have rallied more so than US equities.

4. If the market crashes, which I think is more likely than a break above the 50% level (of course we would want to look at at other technical indicators if/when the market reaches the 50% level), will the dollar rally as well? That is what we saw in 2008. However at some point the market will not be able to buy US dollars, especially with the Fed continuing to print more money. So, if US equities crash, we will see a flight to safety -- though I think it's still unclear whether safety means US dollars (like it did in 2008) or if it means something else, particularly gold and silver.

5. I'm long gold and silver, but I will be looking to exit some of my positions if gold breaks below $980/oz (see previous analysis of gold).

6. MZM, one of my favorite money supply indicators, turned deflationary this past month (meaning it declined). The last time this occurred was right before the crash of '08. MZM tends to be very well-correlated with the US dollar over the long run. The trend on MZM is still upwards, but the recent dip suggests we may get a dollar rally of some kind.

7. Conclusion: $980 is a key level on gold that I'm watching. At this point I think a dollar rally in October is a bit more likely, but of course I will let the charts tell me what is happening. Overall I remain quite confident that the major trends in the marketplace continue to exist and so I will be looking at a potential rally in the US dollar as an opportunity to short it from a higher level.

Disclosure: Long gold, silver, Australian dollar. Short US dollar.

Tenet Healthcare (THC), a publicly traded company focused on providing quality healthcare via hospitals, has been on a tear this year. Its stock price has risen by over 300%, and the trend is clearly upwards. The rise in price may be partially attributable to improvement's in the company's financials: while the company did post a loss in the second quarter of 2009, its revenue continues to grow. Moreover, if discontinued operations were excluded from financials, the company would be profitable. This suggests the company may be on the right track.

Economic woes, however, affect all industries -- including healthcare. Will the Obama plan for creating more health insurance options help companies like THC? Perhaps, although government handouts typically come at the expense of greater regulatory scrutiny. Government handouts also increase the likelihood that political connections will impact how regulations are structured. Given that Tenet Healthcare has not been the best friend of the US government -- in 2006, the company settled on charges that it was overcharging the US federal government for Medicare expenses, paying $725 million in cash to the government while foregoing an additional $175 million in fees -- the company may not have the political connections needed to get the most out of proposed government-led healthcare reforms. Moreover, Trevor Fetter, CEO of THC, has expressed skepticism towards the Obama administration's healthcare plans, suggesting that hospitals will be forced to bear too much of the burden.

Fundamentally, I think the picture is a bit mixed, and is dependent much upon pending government legislation. Technically, however, I think THC, which has been on a strong uptrend, is due for a correction. The chart below, a weekly chart of THC, shows RSI overbought and declining, the price near the upper Bollinger band, and a doji as the most recent candlestick. With this in mind, this may be an opportunity for short-term short sellers. Alternatively, those bullish on THC may benefit from waiting for a pullback before going long.

Disclosure: No position.


Simit Patel
InformedTrades - Learn to Trade for Free

Here are six things I'm personally keeping an eye on to gauge the direction of the price of gold:

1. COT report. This report shows that commercial traders -- generally believed to be "smart money" traders involved in day-to-day operations of the commodity in question -- are short gold. The commercial traders are increasingly short while others are increasingly long; in such a scenario, when the non-commercials run out of fuel in their trend, they will start liquidating, and the commercials can see this as an opportunity to add to their short positions and push the market further down.

Below is the chart that illustrates.


2. Consolidation on daily chart. Below is a daily chart. We see consolidation via a pennant formation -- a formation that often precedes a sharp breakout. Accordingly, I think there could be a sharp breakout if the market can break above resistance at $980 or support near $925.

3. US banking system still under stress. US banks are still failing, and more may be on the way. Bank failures increase the need for safe havens, which gold, with its long history of serving as a stable monetary commodity, can provide.

4. The Federal Reserve is still aggressively monetizing. The Federal Reserve has stated they will continue to print money and buy assets through the end of October. Additional money creation without the creation of additional productivity stands to devalue the currency, and is the kind of event that can precipitate a run on a currency. Currency devaluation, particularly when it stems from monetary policy put forth by governmental/quasi-governmental agencies, is bullish for gold, as gold is regarded as a hedge against currency devaluation resulting from central banking policies.

5. Financial fraud rising. Courtesy of Jesse comes the chart below, which shows that financial fraud is rising in the US. Fraud weakens the US dollar and the political economy it stems from, and thus could be seen as bullish for gold.


6. Financial Fraud in Comex. Comex recently permitted gold futures contracts to be settled not only with physical delivery, but with delivery of shares of gold exchange-traded funds like GLD. GATA explains how this inflates the amount of paper gold, much of which may not be backed by real physical gold. This may result in a split in the gold market -- prices for physical delivery and prices for paper gold.

Disclosure: Long physical and paper gold.