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December gold at key resistance

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December Gold futures (gc02z) have reversed form early morning lows to get back to the $320 level, which should put traders on edge as the US Dollar Index (dx00y) 105.61 -0.46% gives back some of this mornings gains.

This has stocks looking mixed as the Dow Industrials (INDU) 8689 -1.4% shows a 125 point decline, S&P 500 Index (SPX.X) 911.73 -0.96% trades down 8.85 points, while the NASDAQ Composite (COMPX) 1,342 -0.23% holds firm with a marginal loss of 3 points.

December Gold futures (gc02z) Chart - Daily Interval

It's been a rather "confusing" and stressful several days for gold stock traders as they've been whipsawed around with some of the S&P 500 reshuffling news which will take to of the big gold stocks in Barrick Gold (NYSE:ABX) $19.17 -0.15% and Placer Dome (NYSE:PDG) $11.13 -1.85% out of the S&P 500. However, the December Gold futures (gc02z) are currently trying to make a move higher and reside right at what looks to be a key level of resistance. A break much above current levels could bring some renewed enthusiasm to gold stocks.

Placer Dome Chart - Daily Interval

Shares of Placer Dome (PDG) may be lagging a move higher in Gold prices due to recent news the company's stock was being taken out of the S&P 500 Index on July 19th. However, I feel that this provides "gold bugs" with a relatively lower risk/high potential return trade as yesterday's volume spike hints that many index positions may have been hedged ahead of the July 19th S&P Changes.

If gold prices can continue higher, then un-hedged shorts that may have come in to short PDG on the thought the stock would fall based on the S&P 500 reshuffling, may get squeezed on a break above $11.50. Since PDG is still in a downward channel, I'm only looking to minimize capital exposure with a 1/2 bullish position and a stop at $10.50 to begin with.

To monitor for bullishness, a bull wants to see gains in gold futures (the commodity that will drive revenues and earnings for gold producers) and a weaker U.S. Dollar (that could potentially increase the demand for gold bullion on fears of monetary inflation, financial risk).

10-year YIELD Chart - Daily Interval

Stock traders are keeping and eye on Treasuries and today's YIELD break lower in the benchmark 10-year YIELD ($TNX.X) of 4.635% is defensive for stocks. Cash running to the perceived safety of Treasuries hints that stocks are perhaps going to suffer further due to a lack of buying that cash provides.

Still, equity traders need to trade their stocks on their own merits, even though various parts of the market exhibit a more defensive posture. Large short positions that are currently held can be unwound and create some upside in stocks.

We've seen some of this in Yahoo! Inc. (NASDAQ:YHOO) $12.62 +3.52% as the stock dipped to a session low of $11.11, only to see buying up to the $12.78 level in just the past hour.

Jeff Bailey
Senior Market Technician
Option Investor

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