Articles


  • Gold in key test



    By Kevin Marder
    The Nasdaq Composite resembles a column of black ants moving tightly down a narrow trail. The speculative sentiment, necessary for a durable advance, boils, perhaps a bit too much in light of some froth beginning to collect beneath the surface of the averages.

    Within the list, the staples have lagged badly since Apr. 19. This is a good-sized plus, as is the lagging stature of the other defensives, such as the utilities , health care and telecoms .

    It would be unusual for a market to print a major top when it is getting such strong outperformance from the interest-sensitives, like the brokers and banks , not to mention the retailers . Tops are processes, unlike bottoms, which occur more or less at once. Breadth just peaked for the move and would likely need some time to unwind prior to the ultimate cyclical top.

    Technology bottomed Apr. 19, with the PowerShares QQQ Trust Series 1 QQQ +0.27%  bottoming the day before. It was the semis , though, that came first, bottoming two weeks’ prior on April 5.

    Gold appears to be in a multi-month bottoming sequence which began with the tax-day selling climax in which the metal put in its steepest two-day decline in 30 years.

    Here is what is notable: SPDR Gold Trust GLD -1.44%  and gold futures have been in a testing sequence, and over the past few days successfully tested the tax-day low of April 15 by holding above that prior level.

    It is to be noted that, in a potential bottoming process, a successful test of the initial low does not have to see price hold above that prior low. Price can undercut the first low as long as it does not decline materially past it. Volume on the test should be lower than it was in the days preceding, and on the day of, the initial low.

    In this case, volume over the past few days has been materially less than that seen on the Apr. 14-15 washout. This is an objective indication that selling pressure now is not what it was then.

    Monday’s volume in gold futures was higher than on any day since the day after the tax-day low (see below chart). This occurred as price gapped lower at the open, found its footing, and then closed up on the session, creating an outside day.


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