September 3 Market Update

Gold continued its move up today while natural gas touched a 7 1/2 year low. The dollar remained relatively flat after considerable intraday movement and stock market internals improved. Oil looks poised to make a vicious turn to the upside. What a day.

Let's start, as usual, with the dollar.

After bouncing around a lot, the dollar ended the day marginally up. Expect a touch on the upper side of the triangle tomorrow around 78.75 intraday. It's going to have to break one direction or the other fairly soon. Odds favor a break to the downside soon, putting the 78.43 support level at risk. A break there should send the dollar to 76 quickly, followed by another short term bounce, and then a fall to 72. That will be a big decision period that should occur over the next few months.

If the dollar breaks down below key support at any point, gold will move up regardless of its technical condition.


Of course, the really interesting move today was again, gold.

Per the update yesterday, all of the triangle patterns are active. Gold was a bit surprising in that it sliced through the 985 mark like it wasn't there, caught additional buying, and made a run for 1000. 1000 has been an intermediate target that we have not discussed much because we felt it would take a little longer to make a move there. Today's action confirms that to be true. We are overbought and failed to take and hold a major level (this was the level that gold surpassed with the Bear Stearns panic and again with the Lehman panic). Ideally, we will assault that level without any panic, but simply through orderly buying. Today's spike will be perceived by traders as a failed attempt at 1000 and gold will be heavily shorted. From a technical perspective, we can view this simply as the beginning of the throwback that we discussed yesterday where gold will pull back to some level, likely the outside upper boundary of the larger triangle below (around 958) and then, with a full head of steam, make a run at 1000. It is possible gold will not pull that far back, but will instead move back to 985 or 970. If you are interested in gold, we believe those levels mark good entry points with a final, possible low of 958-960. This is all in keeping with the triangle formation breakout and is not a violation of that pattern.


It is easier to see the upper bands of resistance on this daily chart. Once the 1000 level is breached and held, 1033 will need to be overcome, then the neckline at around 1050. Very little will stop gold from moving directly to 1300 at that point, aside from occasionally being overbought wherein it will tread water and then move up again.

The long term chart is even more clear. You can see the breakout easily above the triangle. We believe we will retest the triangle upper boundary.

Stock internals have improved markedly. We anticipate a decent day in stocks tomorrow. Crude oil is poised for another move up over the next few days. There may be a few dollars of downside to the 65 range, but no guarantees.

Natural gas continues to disappoint. We are wondering if natural gas producers may have to pay consumers to take the stuff soon. It may not start recovering until later this year or early next, if the winter is cold.

Key credit market stress indicators continue to look solid. In fact, they continue to improve--at least for now.