After a volatile day, gold settles

January 21, 2015 04:16 PM

Fundamentally, at about $1,307 per ounce, the gold market seems to be very oversold.  

Because we haven’t topped last year’s high of $1,347 per ounce (back in July), experts are saying this is just a “run of the mill” early-year rally. Personally, I believe this rally could be more, considering what happened with the Swiss franc’s $30,000 move, some choppy equity trading, and crude’s nose dive. We’ll have to wait and see.

The chart below shows my favorite technical indicators: the 9- (red line), 20- (green line), and 50- (blue line) period simple moving averages (SMA). I have also added Bollinger Bands (BB) in the light blue shaded area, and Candlesticks (the red and green bars). On the daily chart, the space below each bar or Candlestick represents one day of trading. These few technical indicators tell me six-to-12 different characteristics about the market at a quick glance.

From a technical standpoint this is a big bullish breakout on both charts, in my view. To achieve what I call a “super-trend,” what we need to have happen first is a cross of the 9-period SMA (red line) up and over the 20-period SMA (green line) as both indicators point higher on a fairly sharp angle while the market itself trades above the 9. Now we have the 9-period SMA as our first area of support, then the 20, and on the daily chart the 50.

On the daily chart below I also want to point out that what is worth noting is not the light blue Bollinger Band area, but where it starts at the bottom and where it ends at the top. Four out of my five indicators point up: the 50 day, the 20 day, the 9 day, and the top line of the BB's. That’s quite bullish, especially when the market is trading not only above the 9 day, but also above the top line of the BBs. This could also indicate an overbought environment in corn. Even though the market could be do for a correction back to the 9-day SMA or so, markets can remain overbought for long periods of time. At this rate, I expect higher prices.

About the Author

Matt McKinney is a full-service options broker at Zaner Group both buying and selling energies, metals, grains, softs, currencies and the 30-year bond market. My strategies include time frames of 45-120 days with the ability to liquidate at any time. I can be reached at mmckinney@zaner.com.

Whether you're a novice trader who wants to participate in options on futures or an experienced trader, you can also check out my blog at http://www.mmckinneyfutures.com/.