Football Playoffs Resume - Team "Technicals" versus Team "Fundamentals"

The next several days will be rather exciting given the conflict between chart technicals and news fundamentals.

My friends and colleagues often ask me why I watch college and professional football while researching charts and news. Well to me, you see, they are very similar - if not identical. Except when I look at gold, I see TWO battles occurring. There are indeed the bulls and the bears fighting for dominance and moving price. But then there are ALSO technical indicators and/or chart patterns fighting against news fundamentals. In my humble opinion, and professional viewpoint, there are basically FOUR major points to look at when attempting to predict or read prices:

1. Technical indicators showing bullish behavior;

2. Technical indicators showing bearish behavior;

3. Fundamentals supporting bullish behavior; and

4. Fundamentals supporting bearish behavior.

Within each of these four points, there are many signs that create a small picture for each single point and the sum total of these four points then lend credence to the actual direction of the price of the instrument being analyzed. You follow?

I practically throw a party whenever I see 90% or more of the top technical indicators being bullish and 90% or more of the fundamental news supporting bullish actions - it's almost a surefire prediction that prices will be going up! BUT, alas this is quite rare.

More realistically, however, one has to make a judgment call when it comes to something...not so surefire like say for example 67% of the top technical indicators murmuring "up" and 60% of the major news items hinting at something bullish by law of 'chain reaction.' And by chain reaction I mean, for example, good news coming out of the ECB presenting somewhat of a positive sentiment for the Euro and thus potentially weakening the U.S. dollar and therefore showing, apparently, good news for gold.

I suppose some of you might now see why we pay analysts the big bucks to sift through this torrent sea of data for us (hint-hint nudge-nudge at my boss).

I will of course constantly be updating my blogs with these indicators, and sometimes chart patterns, in order to present to you somewhat of an informing picture...errr sketch. So now without further ado...

TECHNICAL OUTLOOK FOR GOLD

Below I've attached a daily closing prices chart for the XAU/USD pair (Gold-to-USD).

The oscillating indicators at the bottom of the chart (MACD and RSI) both indicate somewhat of an over-sold condition. The MACD is screaming, "Oversold!" Reason being that both the main MACD line (thin blue) and the "signal" line (thin red) are in oversold territory AND the MACD line has crossed through the signal line upwards. However, the RSI is saying, "Gradually heading out of over-sold territory with more room to go up," and the reason I say this is because usually anything below 30 on the RSI means oversold and anything over 70 usually means overbought. Currently, however, the RSI is riding the 50 mark, BUT it has done so while having come FROM the 30 zone.

The 200 day moving average line (thick blue) is ABOVE the price action indicating that price is in a bearish zone, BUT the fact that price is heading towards it indicates a momentum whereupon one of three things may happen, with the first two being more common, per technical reading teachings: The first possibility is a break through the 200 day moving average line to start a bullish run. The second possibility is a bounce back from the 200 day moving average line (as if the line was operating as resistance) and price heading down bearishly. The third and lesser likely possibility, per the school of technical chart reading, would be for price to dilly dally right at the 200 day moving average line.

Finally, there is a major resistance line around $1,619 and I say major because that line was established by a price peak or 'top' on December 21, 2011, and a few more price valleys or 'bottoms' as far back as October 4th, 5th, 20th and 21st last year. Gold has managed to break up through this $1,619 line (and thus establish a 1st down lol), but it will then have to contend with the 200 day moving average line (for its next 1st down) and then ANOTHER major resistance line at $1,677 (for a touchdown. See? Wasn't that exhilarating? No? Well it was for me). Of course the beauty of beating a resistance line is the well-known fact that that line can THEN operate as support later – it’s kind of like winning a beautiful trophy that inspires a team to NOT lose it on the next annual meet up.

So in more layman's terms, we have the oscillators somewhat supporting a bullish movement (I'd say roughly a 75% vote for it) and we have the moving average and resistance lines making threatening gestures against the bulls (I'd say roughly a 50% vote against it) for a net total of a 25% vote for "up" at this juncture.

So then what is really going to tip the scales this week to confirm a bullish trend? Well, that’s indeed where the FUNDAMENTALS come in and so I’ll definitely be checking in on what the others have to say regarding that arena.

Remember, technical charts are not maps that pinpoint exactly where prices will be, they are more like archaic GPS devices accurate to within a mile...

- Gerald

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