Compression is defined as the decrease in volume of any object or substance resulting from applied stress. Compression may be undergone by solids, liquids, and gases and by living systems.
And, apparently, by gold.
What is the applied stress in gold? First off, too many bears. Second, a relatively strong dollar. Third, rising yields, although they did soften today. Fourth, a belief in the recent rally in equities abating investors' fears to a degree.
Yet, even with all that, gold has not sold off. In fact, the compression is both interesting and prophetic. Interesting, in that the stories about gold bullion shortages are priced in to the market. Prophetic, in that the price is having a fourth inside week, relaying that the hope is more like wish.
Note the trading ranges of the last four weeks.
- Week One: 157.04-163.60 (the largest range)
- Week Two: 157.80-162.00 (inside week one)
- Week Three: 158.10-162 (inside week one and week two)
- Week Four thus far: 158.89-160.95 (inside week one, two and three)
Compression force is the force generated from compressing an object or substance, which is a common use of physics in powering most hand tools. Compression force can be visualized by placing an object on a spring. When the spring is compressed and then released, the object is ejected into the air.
Will gold find its compression force to eject the price into the air? That's exactly what we are watching for.
On Monday, I made my debut on Yahoo Finance with "The First Trade." I look at new concepts in our pandemic world by examining small cap stocks and ETFs worth watching. You can see it here.
- S&P 500 (SPY): Broke the 10-DMA on the close; 285 will be key support
- Russell 2000 (IWM): 128.50 or the 10-DMA broke - now pivotal
- Dow (DIA): 240 or the 10-DMA broke - now pivotal
- Nasdaq (QQQ): 229.32 gap never filled, 220 support
- KRE (Regional Banks): Key to this selloff; did not follow & showed early weakness. 30 support
- SMH (Semiconductors): 133 pivotal
- IYT (Transportation): 140 the must-hold
- IBB (Biotechnology): 128 key support. I hope my video explains why we did not chase this
- XRT (Retail): 38.43 last swing high. 36.80 support to hold
- Volatility Index (VXX): Sure returned today. 35.00 support
- LQD (iShs iBoxx High Yield Bonds): FED buying did not do much. 127.30 must-clear
Director of Trading Research and Education