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Wednesday, February 27, 2013

The Commodities Downgrade

 By Wall Street Elite

New York, Feb.27, hot stock picks .- For those who have been following, we’ve been spotlighting the precious metals here for at least a month. We’ve warned in particular about the dangers of owning gold and silver and the miners of those metals, and last week’s action in all three has confirmed our outlook.
At this point, yes, gold is oversold. A look at its proxy, the SPDR Gold Trust ETF (NYSE:GLD) shows that the metal has fallen too far, too fast, and it would be reasonable to expect a bump higher at this point. Have a look at the chart.

Technically, there’s evidence of at least a near term bottom in place for gold. Had the volume figures been more significant we might consider calling it an intermediate bottom. But it’s not the case.
And while RSI has dipped below 20, we say the momentum appears still to be downward for gold, so we won’t confuse a few weeks of constructive upward action with the beginning of a new bull move. At least not yet. If you want to play the retracement, we wish you look. To us, it appears the trend is still down.Why?
As we showed in our last dispatch of Options Trader Elite, entitled Silver Takes Another Bullet, silver’s technicals on the daily, weekly and monthly charts were all looking bearish as of early last week, and the same is now true for gold. Here are both the weekly and monthly charts for gold.
In brief, the picture is awful. All technicals point overwhelmingly toward gold heading into the crapper. Weekly, we have a bearish MACD confirmation of RSI’s dive below its waterline (blue squares at top), and monthly, we see a break below support at the short term moving average (black oval at bottom) and RSI about to dunk below its own waterline (blue square at bottom).
Again, the question for gold investors (and silver, which we believe is only at the beginning of its decline) is whether the recent oversold bottom reading from the daily RSI means the decline is over altogether and a new bullish leg-up is about to begin, or we can expect some sideways action now to work off the oversold condition before another decline ensues.
Our take is like this.
Precious Metals Leads the Commodities
It was once a fairly widely understood principle among technical analysts and those who study intermarket analysis, that gold leads the commodities. Whether this is still the common wisdom today is an open question.
For our part, we’ve always found it difficult to work tradeable information out of intermarket analysis. The lag time between market turns in bonds, stocks and commodities (and a number of the sub-groups between which intermarket analysis claims to see relationships) is too elastic to determine whether a true turn has come on the trailing asset. The general pattern may work with enough time given to examine the relationships in retrospect, but real life trading requires one to operate in the ‘now’.
That said, we see the commodities today in a similar light to that of gold just over a year ago – an asset class that’s getting ready to give up the ghost. Have a look at the charts. Here’s the PowerShares DB Commodity Index ETF (NYSE:DBC) for the last two years.
As you can see, there are two distinct ways to read the technicals here. The bulls might see a reverse head and shoulders bottom in the making over the last eighteen months (in red), while the bears will see a staircase descent, with lower highs and lower lows for nearly two full years (black circles). The blue line at $30 will be understood as a neckline for the bulls, and as a double top for the bears.
The question marks at the right ask whether it will be a right shoulder (in red) that forms above the last bottom at $24, or a descent below $24 (in black) that signals a continuation of the bear. Looks like either way we should see a decline.
For our part, we side with the latter. We’re leaning on recent action in the RSI and MACD indicators (in blue, at bottom) to support our contention that money will be made on the short side of the commodities trade over the next three to twelve months. RSI dove below its waterline last Tuesday, while the MACD could confirm as early as this Wednesday. If and when that occurs, we’ll see the slide begin in earnest. ...

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