More Glitter (And a Note on FX)

The good news, I suppose, is that in my most recent post on GLD, I didn’t suggest getting short. Still, I  did express caution about getting long, although there were some suggestions that GLD might be close to putting in a base. My expectation was that the recent lows were eventually likely to be taken out, even if the timing was ambiguous. This is an instance where, while the chart certainly indicated that positions had become dangerously overweight to the short side, there was no suspicion that the non-farm payrolls report would be world-class ugly, far worse than even the most pessimistic forecast.

So, okay, hopefully anyone who was short had a reasonably tight stop in to preserve the bulk of their profits; it was a long and potentially profitable journey down. Now what? On the daily chart, GLD blew through the intiial sell zone, but hasn’t yet made it to what should be firm resistance. Still, the market may need a while to decide if QE3 is or isn’t coming from the Fed. If the former, the ETF could continue to come higher on anticipation of future inflation; if the latter, we could quickly head lower again. Friday’s vertical bar is one of the poster children for an Expanded Range Vertical Bar, not usually something to lightly get in front of. My sense is that plenty of traders will be looking to sell the bounce, but stops on new positions are likely to be tight, creating the potential for another round of short covering if the verbiage from Fed officials points to another round of QE.

A quick note for those involved in FX; London, which does more than half of the daily global volume in FX, is closed both Monday and Tuesday, so liquidity is likely to be spotty, particularly if it’s really needed due to news out of Europe, etc. Nothing has happened thus far over the weekend to suggest that there’s any compelling reason for people to cover EUR shorts, but if there is a headline that creates a scramble to cover, it could get genuinely ugly with London largely absent.

Best of luck in the week ahead!

About the Author Brian Keith

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