THE CORRECTION - PART TWO / CASEY´S DAILY DISPATCH ( RECOMMENDED READING )

The Correction – Part Two



We kick off today with a continuation of yesterday’s discussion. About the correction, that is, as opposed to being fondled by strangers.


While we’re not big fans of technical analysis, we do keep one eye on TA for the simple reason that it’s watched so closely by many traders. That can lead to self-fulfilling prophecies as buying or selling is triggered when levels thought important by the traders are breached.


In terms of the U.S. stock market, with the S&P index now at 1180, the upside ceiling is considered to be in the range of 1210 to 1220. A break decisively above that range would suggest the equities correction is over and the market is headed higher.


On the downside, the next support level for the S&P is 1150. If that fails, the next stop is the 1010 to 1020 range. Things start to get interesting should the S&P break down through the 1000 level, as traders would take that as an indication that the train has left the tracks, triggering ever more aggressive selling.


As for the metals, this morning longtime friend and commodities trader Steve Belmont of the RMB Group kindly sent across the latest numbers and observations from the technical side.


On the downside:


For gold we’re watching $1,320 (38% Fibonacci retracement support), $1,289 (50% retracement – also Fib), and $1,260 (.618 Fib retracement – also old breakout level). A close below here would be damaging short term. Weekly (Friday) close below $1,233 violates intermediate-term uptrend.


Silver: $24.96 (38% Fibonacci retracement support) was tested yesterday and has held – so far. $23.58 (50% retracement – also Fib), $21.20 (.618 Fib retracement) is also good support. Markets can retrace or correct this much without damaging the longer-term trend.


However, once a market dips below the .618 level, the bull trend is damaged enough making the odds of a subsequent recovery suspect at best. Weekly (Friday) close below $18.90 negates uptrend in silver.


What's the next level on the downside that would get people worried that it had further to go?


Gold: two consecutively lower closes below $1,235 would be very damaging. Silver: two consecutive lower closes below $21.20 would be equally damaging.


On the upside:


Both gold and silver would have to close above old highs for traders to consider that the correction is over. For gold that would mean $1,423.20, for silver $29.34.


Thoughts on how low gold and silver go in this correction:


Gold: I think $1,260 is possible but would be a buyer there until bullish season is over.


For silver my buy point is the same.618 retracement or $21.20. Would watch the 50 retracements in both markets closely, however. Again, for gold that’s $1,289 and for silver that’s $23.58. Should they hold, I might be tempted to re-establish a half position there instead.