TIMING UPDATE: SIGNS TO WATCH FOR FEB 29TH

On Feb 15th, I posted this chart of GOLD and indicated the FIB ENDING WEEK OF  FEB 21; the week ending FEB 24TH, was a significant time to watch for change in GOLD.

I indicated the move out of this FIB week would be of importance going forward for 34 weeks after.

Today, exactly 3 trading days beyond the FIB ending week of the 24th, GOLD DECLINED $100 dollars. The decline was on heavy volume, filling up gaps and creating a BEARISH ENGULFING PATTERN.

On FEB 15TH, I also pointed out the close relationship between EURO investment and GOLD investment. I also indicated that it is my belief, that a credit event either with a bank or country, could force the hand of banks or countries to unload their GOLD stock.

The EURO today saw heavy selling on increased volume, creating a lower high on daily chart.

The US Dollar found solid support at the 200 sma on daily; creating a bullish engulfing pattern.

It is my contention based on history, markets can not find bottoms unless the DOW:GOLD ratio moves closer to 1 to 1 or 1 to 2.  Currently it takes 8 Oz's of GOLD to buy ONE SHARE OF THE DOW.

This chart divides GOLD by the DOW and shows the relationship is testing an uptrend line of significance.

Conclusion:

The DOW/GOLD ratio is directly affected by the action in the EURO and the US dollar.

The parabolic move in GOLD has been quickly taken back and might foreshadow the next move in the indexes.

FIB WEEK analysis suggest the move by GOLD  after 21 FIB WEEK ending 24th, could  foreshadow the next leg in GOLD.

GOLD/DOW ratio shows the broad indexes can not move higher; if the commodity indexes are moving lower. A compression in GOLD, will mean a compression in stocks.

The EURO and US dollar play a pivotal role in the direction of GOLD and the DOW. Both currencies are at make or break pivot areas.

Will GOLD/DOW be supported at the up sloping trend line? Will the EURO hold its pivot?  Or will the US Dollar break higher and DOW/GOLD break below its upward trend setting up a new trend?

Tim Kathlina



BEFORE THE BELL: GOLD TREND UPDATE FEB 16TH

Yesterday I got asked a GREAT question: Is it true that if Greece fails, GOLD will move higher?

Without any technical analysis, my reply was no this is not true. The reason is, the bailouts are not for Greece, they are for the BANKS; this is important to understand.

If Greece defaults, the "derivative contracts" are due and payable to the counter parties that purchased this "insurance" against a Greek default. Because banks are leveraged, meaning loans extended, verses cash on hand, over 60 to 1 in many cases, the Banks simply do not have the money to pay.

What that means is, the BANKS, of which US Banks own 97% of the worlds derivative contracts, would be immediately insolvent. Margin calls would be issued, and I surmise the Banks would be forced to SELL THEIR GOLD. (All of this assuming Greece defaults, and it is ruled a default by the ISDA)

Today from CNBC we get:
Gold Demand Hits New Records as Europeans Stockpile. Demand for gold hit an all-time high in 2011 as European, Indian and Chinese demand soared.
Total demand around the world rose to 4,067 tonnes, worth around $206 billion – the first time annual demand for gold has risen above $200 billion.

Lets get technical:

First thing I tried to do is establish a time line. I have explained before about Fib Time Frames, the universal law of numbers in relation to each other.

If we over lay a Fib Time sequence on a yearly chart, GOLD in a yearly cycle, starting at zero in Feb 2011, the numbers line up PERFECTLY. The expectation is to look for direction out of each Fib time frame.

Notice GLD went up into FIB 5, down into 8, up into 13, consolidated into 21, which is THIS WEEK ending. Remember for the SPY, we have FIB 13 week ending next week, 24th.

Which way will GOLD go? I do not know. But, having this time frame we can propose, which ever way it breaks, up or down, the trend will extend out for 34 WEEKS.

Here wave GLD daily. I have elected to use ICHIMOKU CLOUDS as our technical indicator. Reason is they offer a wider range of resistance and support calculations and GOLD is very volatile; many fast trends within the big trend.

The daily for now shows NO OBVIOUS SIGN of weakness in Gold. We are above the support cloud, consolidating/distributing from Fib 13 into Feb 21.

This could very well be nothing more then a 2nd wave or 4th wave EW pullback in a larger uptrend. I will say 21 weeks is a very extended time frame for any 2nd or 4th wave EW consolidation.

21 WEEKS suggest a DISTRIBUTION TOP pattern; but I can't say for sure.

So, next step in our quest to answer the GOLD riddle is to compare it to something else; then look for CORRELATION. Try to find another tradable asset that seems to move lock step with GOLD.

I ran gold up against, Wal-Mart, big global player, IBM, Inverted GOLD Short etf and the EURO-BINGO!

GOLD/EURO correlate over the last 3 years almost perfectly. It seems the fortunes of the Europeans, has a direct correlation to GOLD. (Which goes back to my reply yesterday, so goes Greece, so goes GOLD)

Notice the 1st indicator is the correlation %. Stays above zero line, and many months above 50% line. The only below zero, was when the EURO and GOLD were in a correction, but the EURO corrected longer. Either way, both were correcting and both moved higher out of the correction.

Currently both are in a correction and the correlation is very high.

Having established the relationship between the EURO/GOLD; lets drill down and take a look at the EURO.

To compare apples to apples, I overlay the EURO with the same ICHIMOKU CLOUD. This time the picture is the opposite of the GOLD daily picture.

EURO for now, is not consolidating, but in a confirmed downtrend; noted by being BELOW THE CLOUD combined with several other sell signals.

Conclusion:

Gold chart is still bullish, above the cloud, and doesn't provide any conclusive evidence of a trend change. The amount of time spent consolidating, 21 weeks, is much longer then a typical wave 2 or 4 pullback, suggesting distribution, not consolidation.

Euro and Gold are confirmed to move lock step with each other over the length of my chart sample, 3 years.

The EURO for now is in a confirmed downtrend. No time analysis was offered for this, but I have to assume since its been going up for years, we are possibly in the EARLY stages of this trend.

I expect GOLD to move decisively in a direction within the next 5-10 days; this direction to be maintained for 34 weeks.

Tim Kathlina

AFTER THE BELL-OIL TO $120, SPY, EURO/DOLLAR UPDATE JAN 11TH

ZeroHedge Jan 11th-Iran Interest Rates Raised To 20% To Fight Hyperinflation; Iran Nuclear Scientist Killed In Street Bomb Explosion.

Americans will not support an invasion of Iran without provocation by Iran. History is well documented that governments in order to achieve an objective will create circumstances, under the radar, to pressure an identified enemy to make the first attack.

As FDR did enticing Japan to attack Pearl Harbor, George Bush urging Saddam to attack Kuwait, Obama is now boxing Iran in to entice them to attack US interest. Nothing helps re-election like war; foreign and domestic: Oklahoma City-Bill Clinton, 911-George Bush, Iran-Obama.

Looking at Light Crude, the daily chart seems to have an Inverted Head-n-Shoulders pattern. IF this pattern breaks the neckline upward, then the calculated upside is between $110-$120. If this breaks the neck line based on Iran/US military encounter, sky is the limit. Either way, as of today, it seems the path of least resistance for OIL is HIGHER.

December thru many fund managers under the bus because the decoupling of the Euro from the S&P. Prior to December, fund managers could count on the currency to move lock step with the US index. The majority of fund managers missed the 1290 S&P upside that we called for due to this decoupling.

Looking at the Euro, the chart looks to be in a bear wave 3 on the daily chart. I project the ending of this 3 wave between $123-125. Generally a 3-wave, an impulse wave, will extend 61% of wave one.

Wave one was 12 points top to bottom. 1.61%x12 is 19. Subtract 19 from wave 2-top of 142, gives us a price target between $123-125. At this price, we will buy the Euro.

Here the dollar/spx in December began running together. Again, this shows the appetite for all things US. Money will always go where its treated best.

Conclusion: Inverted H-n-S pattern in oil, plus Obama desperate to win re-election, almost ensures escalation of Iran conflict towards war, and higher oil prices. (Nothing is ever a sure thing)

For now, money is flowing into all things American, its the lesser of two evils. The question is as everyone seems to be all in USA, will the EURO bottom as we project, money move out of US stocks/US dollar; moving into EURO, GOLD, OIL, SILVER, etc? Or will a rising tide float all boats, and everything goes higher on extreme bullishness? This we do not have an answer to yet.

So, we will go long the EURO at the calculated bottom, wait for the response by US equities. Our next TVIX insurance purchase is coming within days.

Tim Kathlina

After the Bell-Before The Fed Dec 13th QE3 or No QE3?

What happens when the FED monetizes things? More dollars are printed and chase after the same amount of product, thus increasing the products price and decreasing the value or purchasing power of the money.
So, in a QE3 scenario, that would mean Gold goes higher, US dollar goes lower against a rising Euro dollar.

Stocks and Bill Gross from Pimco and other Wall St players are convinced the FED is soon to begin QE3. But as we see in the charts below, GOLD investors, and currency traders so far seem to think otherwise.

So who is correct??????????? Your guess is as good as mine.

Tim Kathlina