You could see fear in the charts
last week , when gold broke out to a contract high in safe-haven buying. Gold has since rallied more than $11 an ounce. Now we're seeing a veritable run to the hills, with traders taking cover in what the financial markets consider some of the safest mountains in the world during times of geopolitical crisis. So when the Swiss franc takes the rare step of decoupling from its big sister, the euro, and rallies to a new high, you know the mood is one of increasing fear, uncertainty and a desire to locate the world's safest vault. On Wednesday, the March Swiss franc (SFH3:CME) closed at a new high, while the euro FX (ECH3:CME) languished. Early Thursday, we're seeing follow-through to a new contract high in the Swiss, confirming the decoupling and flight-to-safety move. In short, the market appears to want to find a safe hideout during the Christmas-shortened holiday week, and perhaps for the rest of the year.
The Swiss AlpsDiscreetness, neutrality and a rock-solid banking system characterize the Swiss. Such traits make financial players who are looking for a place to park assets feel safer now that the ETA for bombs in Baghdad may have been moved up, thanks to Saddam Hussein's omissions regarding bioweapons. But there's more to Switzerland than meets the eye to instill investors' confidence in that country and national currency during troubled times. For starters, the Swiss have one of the world's most highly trained and armed civil militias. The Swiss also have government-mandated fallout shelters required in most large homes and workplaces. In short, the Swiss have already made plans to survive attacks from weapons of mass destruction, including chemical and biological weapons. They've also made plans to protect their gold, wealth and banking system. And they have plans to protect the gold and wealth of the wealthy who enrich them.
SetupsThe behavior of the Swiss franc suggests we'll see a continuation of the flight-to-safety plays that have been panning out all week. The momentum markets -- gold, the Swiss franc and the euro -- will likely continue higher, with traders stepping in to buy pullbacks. For instance, in Thursday's session, as shown in the chart below, traders stepped up to buy February gold (GCG3:COMEX) at a confluence of intraday retracements -- the 38.2% and 50% -- from Wednesday's rallies. Similarly, the March Swiss franc could see support at 0.6996, 0.6973 and 0.6957. The prevalence of fear is also bearish for stock-index futures, leaving them vulnerable despite some whipsawing at a three-week low. The March S&Ps (SPH3:CME) held on Dec. 16 and 17 in a tweezers tops formation at the 38.2% retracement of their descent this month. When a pattern holds below such key resistance, that's technically bearish, adding to the downside case.
|Shining Session |
Traders pick up February gold
In the softs, March coffee (KCH3:NYBOT) is triggering out of a classic pullback from a low setup, and March cocoa (CCH3:NYBOT) is poised for a move higher out of a pennant.