Last week was an exciting one for intra-day traders who follow the spot gold and major stock indexes. Actually, since early November 2009 the market has been performing very well for us day traders.

As we all know the market is consistently changing its price patterns and momentum from up, sideways to down, which in turn affects everyone’s trading results for any given month.

For swing/position traders who trade using the daily charts they will find some months will favor trend trading strategies, while other months favor short term range bound strategies, and other months that just are not good for trading at all like last November and December.

During extremely choppy market conditions such as we saw last November and December, the market was up an down like a yo-yo. Swing/position traders had a tough time making money, and speaking for myself, once the market gets like that I patiently sit in cash or hold very small positions.

The good news is that when the market become choppy and swing traders are having a tough time making money (which is fast intra-day up and down movements), day traders come out of the wood work like fire ants. There are crazy amounts of money made and lost during high volume intraday trend reversals and pattern breakouts.

Day Trading Spot Gold – YG J0 Gold Mini Futures Contract
Here is a quick video I did of my trade in gold on March 9th. This video shows a trade using the 5 minute spot gold chart profiting $6.00 per ounce with minimal downside risk. Depending on what you use to trade gold – Futures Contract, ETF or CFD – you could have profited $600-$2,400 in less than 2 hours.

This is the second video I have ever done so it’s nothing fancy by any means. It will take me a few more videos to get a good understanding of them as I do plan on doing weekly videos in the coming weeks and will be sure to make them more exciting.

Gold Day Trade

Day Trading the Index – DIA Exchange Traded Fund
If you watched the gold video above you will see how I day traded spot gold in the morning and why I used futures as my investment vehicle. That being said, anyone could have traded the GLD or DGP gold etfs.

Only a couple hours later I saw a great Head & Shoulders pattern on the broad market indexes. Taking a step back, my chart analysis has been telling me to look for a reversal pattern on the broad market as I feel it is over bought, and I still do…

So when I saw gold roll over then a reversal pattern on the Dow Jones Index, I decided to take a short position. Also, I noticed the price reverse down off the right shoulder.

This time, I traded the DIA etf just because it is where I saw the pattern develop first and because I have a thing for DIA (I just like trading it).

So once the price reversed down off the right shoulder with the long red candle I went short at $106.07 with a first target at $105.85 to sell half of my position, and then move my stop to break even on the balance of my position. I ended up pocketing just over 25 cents per share in gains which does not sound like much but because day traders get 4:1 and some brokers allow 10:1 leverage you can trade large amounts of shares for these quick trades.

Trading the DIA I focus on 500 or 1000 shares per trade depending on how I feel about the trade. This particular trade I did 1000 shares pocketing $250 profit within 70 minutes.

*Trading Tip*
If you see a Head & Shoulders pattern with a neckline angled up (see chart below), then you should focus on trying to short the top of the right hand shoulder (the first reversal candle). The key here is to be short before the index (or any investment) breaks the neckline.

Once a neckline is broken a large surge of sellers should rush in as everyone jumps out of their long position. Also, this is the point when aggressive traders start taking a short in order to take advantage of the breakdown and price depreciation.

So if you see a right shoulder drifting higher into resistance with that bearish looking flag, be ready to short once you see selling volume pick up and a drop in price.

Day Trading Spot Gold and the Indexes Conclusion:
Well I hope this short report helps you to take advantage of the market using different trading strategies and time frames. Every day and week is different and I jump around from trading 60 minutes charts, 4 hour, daily and the occasional 5 minute charts like the ones above.

I try to stay away from the 5 minute charts simply because they move so fast, and the shorter the time frame the smaller the potential. But some days favor it so I just take what the market gives me and that’s all we can do.

On another note, if you are interested in my new high-end trading service that trades all the setups in real-time, I will be launching this service with my personal trades and analysis for you to trade alongside me!

You will receive all my intraday and swing trade alerts for indexes and commodities allowing you to trade which ever vehicle you want – whether it’s an ETF, Leveraged ETF, Futures Contract or CFD. This way your timing is accurate, your downside risk is carefully calculated and you can trade which every investment you are comfortable with

There will be a 24/7 chat room allowing us to trade around the clock when setups arise. Also, members can swap ideas, ask me questions, make new trading buddies etc… There is even a squawk box feature! I can and will talk live with audio to everyone in the chat room for important news, trades alerts or questions.

All trade alerts are instantly posted in the members area, chat-room and sent via email making it one of the most powerful trading services I have ever seen available online.

If you are interested please fill out the form to be notified for this service which will start the last week of March or the first week of April. It will have limited availability to keep it personal.

Chris Vermeulen
www.TheTechnicalTraders.com

Tim Iacono Reuters reports on comments made by China’s top foreign exchange manager at the annual gathering of the National People’s Congress in Beijing on the subject of gold purchases.

Yi Gang, head of the State Administration of Foreign Exchange, said that while gold was “not a bad asset,” it would never become a big part of China’s overall investment portfolio. “The international gold market is very limited. If I purchase gold on a massive scale, it will definitely push up global gold prices,” Yi said at a news conference on the sidelines of China’s annual parliament. … China’s $2.4 trillion in foreign currency reserves and its relatively small gold holdings have fueled speculation the country is continuing to buy, although officials have insisted that any increases have come from domestically produced gold and the international price is too high. “It is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves. We have 1,000 tonnes now, and even if I double that holding, according to current prices, that would be about $30 billion,” Yi said. “It would just increase the level of gold (in China’s reserves) to about 2 percent from the current 1 percent.”

They’re damned if they do and damned if they don’t and the numbers involved are not likely to get any better before they get worse. Absent a dip in the price of gold back down below $1,000 an ounce (at which time, they’ll probably snap up that 191 tonnes of IMF gold), they’ll probably just keep adding to their gold reserves quietly and, as they did last summer, announce long afterward that they have made substantial additions to their holdings. As noted by Yi above, at current prices 1,000 tonnes of gold costs about $30 billion, however, not only is that $30 billion only about one percent of their foreign exchange reserves, the corresponding 1,000 tonnes of gold is the equivalent of almost half of annual mine production around the world, or nearly one-third of global supply for the entire year. They simply can’t make large purchase on the open market without pushing prices significantly higher, but they clearly want to buy more and should buy more, a point that should be obvious to any sensible public official whose country goes on continuing to accept money backed by nothing more than faith from trading partners around the world. While the above comments were really just stating the obvious, Yi went on to note the long-term performance of gold, offering the following:

“Gold prices in recent years have risen very nicely, but if we look at the price over the last 30 years, gold prices moved in great swings,” he said. “So as an investment, its yield is not very good from a 30-year point of view.”

This is quite an interesting comment indeed. By now, ten-years into the commodities bull market, everyone knows that gold’s 30-year track record is unimpressive but, if you go back another 10 years it is very good – as good or better than just about any other asset class. One could argue that he is simply restating what has passed as conventional wisdom amongst financial advisers in the West for decades – that gold provides no return and is a largely useless artifact of an early, outdated system – or, this could be one more in a series of gold-bashing comments by a government that desperately wants to exchange more of its dollars for gold, preferably at lower prices. Not knowing anything about Yi Gang, it’s impossible to know what his motivation was, but the fact that China is run by engineers makes me think that it is more likely the latter explanation (talking the price down so they can buy more) rather than the former (the hopelessly naive view of most economists and politicians in the West who don’t realize that we’re on the back end of another experiment with fiat money that has gone horribly wrong and will end like all the others before it).

The question now remains whether gold is stuck in a D-wave decline or whether the action since December has just been a very tricky midpoint consolidation before the C-wave finishes its run.

I will say the recent strength despite a strong dollar is very encouraging.

There are four important requirements that have to be met before we can say with a high degree of confidence that the C-wave is still in play.

First, the single most important is the dollar. We simply must see the intermediate dollar cycle top. No C-wave has been able to fight a rising dollar. What I’ll be looking for is a weekly swing high on the dollar chart as a sign the intermediate cycle has topped.
I will note the dollar is getting late enough in the cycle that it could put in a top at any time. Not to mention we are starting to see a large momentum divergence forming.

Second, the next requirement is for gold to put in a right translated daily cycle. If this remains a D-wave decline then all daily cycles should be left translated. If gold can eclipse $1131 this week then we will have a right translated cycle and the second requirement will have been successfully met. With today’s close above $1133, this key requirement is satisfied.

Third, the next hurdle for gold is the $1161 level which has to be surpassed. Gold has to break the pattern of lower highs and lower lows. It will do that if gold can top $1161.
The $1161 price level will also eliminate the December trough as the intermediate cycle low. Instead, the most recent intermediate cycle low would become February.
This is very important as it would mean gold is on week 4 of the intermediate cycle (which typically runs about 20 weeks) instead of week 10. In effect, this puts 6 more weeks on the shot-clock for the second leg of the C-wave to progress.

Fourth and finally, we need the miners to start participating. If the HUI can cut through the 420 resistance level that will be a big step in the right direction. With the HUI close today above 420, this key requirement as also been met.
If miners can break out to new highs later this month all resistance in the gold market will be out of the way and the path will be clear for the second leg of the C-wave to rack up another monster move.

Gary Savage, The Smart Money Tracker

Gary Savage is currently retired and lives in Las Vegas. He is the author of the Smart Money Tracker, a financial blog with special emphasis on the gold secular bull market.

The Mess That Greenspan Made

It’s been an interesting few days and an even more intriguing last two hours or so for both the trade-weighted U.S. dollar and the gold price as, on a daily basis at least, they now seem to be moving together more often than not. On Monday and Wednesday this week they were both down and now, today, they’re both up a little.

That area circled in yellow – around $1,100 an ounce in New York trading – seems to have been hotly contested over the last few days. Based on the latest economic developments in the U.S. (mostly bad) and the latest political intrigue involving Greece (mostly bad), anything could happen over the next day or so for the dollar, the euro, and the gold price.