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Tom Luongo
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I am a chemist by trade and an Austrian Economist by study and love discussing the capital markets and take a qualitative approach to global monetary trends and a technical, quantitative approach to trading. My current focus is on emerging markets of Southeast Asia as well as gold and strategic... More
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  • Hey Gold! Where You Going With That Gun In Your Hand?!

    Below is the chart of the SPDR Gold Trust ETF (AMEX:GLD) which clearly shows two important things.

    1. The true breakout point that gold needs to close over this week to confirm the 2 bar reversal pattern from last week - arrow.
    2. The fact that GLD opened above the high for last week putting it in a very high probability position to best that resistance level.

    (click to enlarge)

    A number of markets are continuing to push up against major decision points. The setup you see on the weekly gold chart above holds a very high probability of the breakout in gold occuring this week. The fundamentals are as strong as they ever were and gold's price action is indicative of a market responding very positively to those fundamentals.

    Looking at the GLD statistics this week, since GLD opened above last week's close this is already an outside bar which puts a floor for the week on GLD at $161.13 to a 90% probability - there's a 9.9% chance GLD will break both the previous week's high and low in the same week. Given how strong the open was on 1/22 there was an 84.6% chance that GLD would exceed the high from January 3rd of $164.14. It hit a high of $164.22. Gold never did reach the high of $1696.15 that printed on the COMEX that day, topping out at $1695.85 so that peak is still intact for a couple of reasons: 1) no daily close above the level to create a preliminary weekly breakout signal and 2) no confirmatory signal in from the other instruments highly correlated to gold.

    With silver (AMEX:SLV) on an 8 day long rally, a feat silver has only managed twice in the past 20 months and both times the rally failed, there are strong odds there will be a pullback in silver in the next day or two and it will take gold with it.

    GLD's close on 1/22 put it in a 65% position to make another attempt on 1/23 to take out $164.22 and if that is achieved a 60% chance to hit $164.50. A daily close above $164.22 will bring in fresh momentum-based buying which has a very good chance of taking GLD up to $166 this week as gold pushes through $1700 during COMEX hours.

    Once these short-term signals confirm themselves they will have spillover effects into longer time frames. The futures are free this week as contract expiration is not until next Wednesday which always seems to create downward pressure for the metals, especially during a month where they rallied significantly. Is this the spectre of Blythe Masters and the JPMorgan (NYSE:JPM) commodities trading desk? Who knows? And, frankly, after all this time, who cares? What matters is what happens between now and the end of the month, a month in which gold, so far, has exhibited very low volatility overall.

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

    Additional disclosure: I own physical gold, silver and a few dairy goats

    Jan 23 9:47 AM | Link | 4 Comments
  • Silver Technicals Jan 11th 2013

    This instablog is a companion to today's article "Silver Not Quite Ready to Rally."

    I've laid out some of my arguments for gold in previous articles (here and here) but I hadn't tied them to silver previously. Against this macro backdrop of a long-term precious metals bull that is far from mature I think it would be valuable to do a quantitative analysis of where silver is today and what the prospects over the rest of Q1 look like.

    (click to enlarge)

    Above is a monthly chart of the iShares silver Trust ETF (AMEX:SLV). From a price perspective silver is bounded by the two lines on the chart. There is very strong support around $26 per share thanks to multiple months where traders bid the price back up before the close. Monthly closes are extremely important, especially ones that happen on a Friday as they represent weekly closes as well.

    Month

    Low

    Close

    Day of Week

    December 2011

    $25.65

    $26.94

    Friday

    May 2012

    $25.99

    $26.96

    Thursday

    June 2012

    $25.34

    $26.65

    Friday

    July 2012

    $25.73

    $27.12

    Tuesday

    August 2012

    $26.13

    $30.79

    Friday

    Note that 3 of the 5 months were Friday closes. Note also that two of them were quarterly closes (December 2011, June 2012).

    In short, the support between $25.34 and $26.65 is, frankly, massive.

    So, that defines the bottom of the current trading range while the top of it is defined, quite clearly, by the 6 monthly peaks which intersect the line I've drawn on the chart above between $34 and $34.65 per share. And will most likely be for at least January as I will now show.

     

     

    SLV Monthly Trading Statistics

     

    % Probability

    # of Points

    Average Range

     

    3.97

    Avg. Range - Open to High

     

    1.99

    Avg. Range - Open to Low

     

    -1.97

    Chance to Break Previous High

    53.7%

     

    Chance to Break Previous Low

    38.9%

     

    Inside Month[1]

    5.6%

     

    Engulfing Month[2]

    5.6%

     

    January opened above December's close but it quickly sold off; violating December's low of $28.65. Because of this January is an outside month - one in which either the previous bar's high or low price is violated. This means that there is a low chance of SLV violating the December high of $32.77 - which would make it an engulfing month, a 5.6% probability. The violation of December's low makes a significant rally in January a remote possibility.

     

     

    Month

    OPEN

    HIGH

    LOW

    CLOSE

    January through 1/9/2013 close

    30.38

    30.47

    28.61

    29.35

    December 2012

    32.52

    32.77

    28.65

    29.37

    All of these statistics are calculated directly from the price action of the previous 54 months of SLV's price action.

    What about the downside? Because SLV has only moved $0.09 above the high normal volatility implies the range for the month could go as low as $26.50 ($30.47 high - $3.97 avg. range = $26.50 downside target). The probability of that happening right now is just 12.2%.

    If the low at $28.61 is a bottom for the month then that creates a new strong support level, increasing the chances of a challenge to the $34 area in February, but more likely March. As of the close on January 10th, there was a 65% chance SLV could close above the open for the month and would set up a bullish posture for February. SLV was higher after the E.C.B. announcement the next morning but there's a lot of January left.

    Until some other signal is given there is a low probability of a breakout or breakdown from the consolidation in silver this month. Silver is range bound. The importance of this type of analysis is to precisely define your risks should you decide to take a position now for a short-term trade.


    [1] Inside Month - defined as a month in which neither the previous month's High or Low price was violated

    [2] Engulfing Month - defined as a month in which BOTH the previous month's High and Low price was violated

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

    Additional disclosure: I own Physical Gold and Silver as well as a few goats

    Jan 11 8:25 AM | Link | Comment!
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