Precious Metals, Copper Traders Closely Monitoring U.S. Dollar

By: Jim Wyckoff | Wed, Dec 12, 2007
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Gold futures have backed off recently, from highs scored in November. The rebound in the U.S. dollar and decline in crude oil prices are mainly responsible for gold backing off. Gold will continue to be strongly influenced by the dollar and crude. My bias is that the dollar is close to putting in a major bottom, if it has not already done so. It's also my bias that crude oil has put in at least a near-term market top, if not a major market top. Thus, I can't be too excited about the uspside prospects for gold in the coming weeks.

See on the weekly continuation chart for nearby gold futures that one uptrend line has recently been penetrated on the downside. Also, recent price action on the weekly chart has formed a potentially bearish descending triangle pattern.

However, no serious longer-term technical damage has yet been produced in the gold futures market.

Silver to Continue to Follow Gold

Generally, silver is going to be a follower of its big brother, gold. See on the weekly continuation chart for nearby silver futures that recent price action has penetrated on the downside and negated a longer-term uptrend line. See, too, that the past rallies in silver have petered out around, or just above, longer-term technical resistance at the $15.00 level. A drop in nearby silver futures prices below solid longer-term chart support at the $13.25 level would be significantly longer-term bearish to suggest a major market top is in place.

But at present, no serious longer-term technical damage has yet been produced in the silver futures market.

Keep an Eye on Copper

Veteran traders know that the red industrial metal, copper, can be a leading indicator for the health of the U.S. stock market and the U.S. economy. See on the weekly continuation chart for nearby copper futures that prices are in a longer-term downtrend after posting a bearish triple-top reversal pattern on the weekly chart.

Serious longer-term technical damage has been inflicted in the copper market. A drop below strong technical support at the recent low, as seen on the chart, would produce more serious longer-term chart damage.

Greenback is Key "Outside Market"

Gold, silver and copper futures traders will continue to closely monitor the value of the U.S. dollar versus the other major currencies in the world.

The daily chart for the U.S. dollar index futures shows an impressive recent recovery from the contract and all-time low. And a weekly high close in the U.S. dollar index futures on Friday would be more near-term bullish technical news.

See on the weekly continuation chart for nearby U.S. dollar index futures that bulls still have some more work to do to begin to suggest, from a longer-term technical basis, that a major market low is in place. However, do note that just this week the dollar index has poked above a downtrend line.

Again, my bias is that there is not much left on the downside in the U.S. dollar index. However, a push to a fresh low in the index would be seriously bearish and open the door to another solid leg down in prices in the coming weeks, or longer.

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Jim Wyckoff

Author: Jim Wyckoff

Jim Wyckoff
Senior Market Strategist

Jim Wyckoff is the proprietor of the "Jim Wyckoff on the Markets" analytical, educational and trading advisory service ( He is also a technical analyst for Dow Jones Newswires and the senior market analyst with and Wisdom Financial. Jim is also a consultant with the highly respected "Pro Farmer" agricultural advisory service. Jim was also the head equities analyst at He received his degree from Iowa State University in Ames, Iowa, where he studied journalism and economics.

Jim has spent nearly 25 years involved with the stock, financial and commodity markets. He was a financial journalist with the FWN newswire service for many years, including stints as a reporter on the rough-and-tumble commodity futures trading floors in Chicago and New York. As a journalist, he has covered every futures market traded in the U.S., at one time or another.

It didn't take Jim long to realize the successful traders and analysts in every market -- be it pork bellies, Treasury bonds or stock index futures -- had a common thread among them: nearly all relied on technical analysis to give them an edge.

Not long after he began his career in financial/commodity market journalism, Jim began studying technical analysis. He found it fascinating. By studying chart patterns and other technical indicators, Jim realized the playing field could be leveled between the "professional insiders" in the markets, and traders/analysts like himself. How can this be? This is how: Market (or stock) price activity and price history, including volume, is a composite reflection of every news event and-or other fundamental factor known to all traders. Price activity also factors in ideas and speculation about the future prospects, and future news, for the market (or stock).

If an individual trader/analyst tried to study and learn all there is to learn about a stock or a futures market, including knowing all the fundamentals that impact, or could impact the stock or commodity, it would be nearly a full-time job. And even if a trader did spend all his time studying a market or stock, he still would not know as much, as soon, as the professional insiders. This is why successful traders and analysts employ technical analysis. Importantly, Jim also spends time studying the fundamentals in markets.

Jim believes traders/analysts who have been involved with commodity, financial and stock index futures markets have an advantage in today's stock and commodity market environment. This is because the more volatile stock market environment of today is just like the volatile commodity and financial futures markets that have been around for many years. Being a successful trader/analyst in volatile markets requires specialized strategies, in order to maximize profits. Successful traders and analysts have been forced to deal with volatility on a routine basis.

Following are just a few of Jim's most important trading tenets:

---Like success at any other job, successful trading requires hard work. There are no short-cuts. Do your homework before initiating any trade.

---Simple trading/analytical strategies work the best. Jim has read the classic technical analysis books and talked face to face with the best market professionals in the world. Most agree that, as Jim's friend Stewart Taylor says, "Simple is Simply Better" when it comes to employing successful trading and analytical strategies. All the neural networks and powerful computers in the world won't compare to a good, basic and well-researched trading plan. Don't confuse simple strategies with easy trading. Simple trading methodologies still require a lot of preparation and work.

In an active stock, FOREX or commodity markets, it's critical to let trading profits run, and cut losses short. If Jim's technical signals are on the mark, he will let the market work in his favor and profits will accrue. If the market turns against him, Jim will have had tight protective stops in place to get him out of the trade before any serious damage is inflicted.

Jim's mission is not just to generate profits for you, but to also provide educational and insightful information to you. In this fascinating business, one never stops learning.

On the personal front, Jim was born and raised in Iowa, where he now resides. He has a wonderful wife and two great children. Jim works very hard on the job, but he also plays hard after work, as he loves adventures. From driving a Jeep across the highest mountain pass in the continental U.S., to summertime speed-boating, to extreme winter camping in the Boundary Waters, to hiking in the jungles of South America, Jim is always up for a new challenge.

Futures and options trading involve substantial risk.

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