One of the most useful features of eSignal is the ability to plot different futures contracts for comparative analysis.
In recent months, gold has been influenced by two other markets in particular, namely, the U.S. dollar and crude oil. The relationship between these futures contracts can be easily displayed on eSignal.
To plot more than one contract on a chart, firstly, bring up the contract you want to compare others against. (In the example in this article, I am using the continuous gold contract, GC #F.) Then, enter a comma (,) on your keyboard. This will open up a window like the one shown subsequently.
As can be seen from the previous screenshot, I can then enter up to 5 other contracts that will also be displayed on the chart. I can even set the interval (in this example, “d” for daily).
Then, I can input the other contracts of interest. Again, notice that I have used the continuous contract for NYMEX WTI crude oil and the U.S. dollar index. Once all of that is done, you click OK.
After you click OK, the window shown in the next screen shot in this article will appear. This allows you to decide how you want the price to be plotted in terms of what price to take (Open, High, Low, Close) and how you want the line to appear (Bar, Line, Candle).
I use Line and Close and attempt to select a color that contrasts well with the existing chart, but, obviously, you can select what suits you. One problem with doing bars is that they can make the chart appear rather congested.
For each additional contract you want to place on the chart, you have to go through this process of deciding what color, price and line style you want. The finished chart appears just as you see it in the next screenshot shown.
As can be seen from the chart, clearly strong correlations exist between these markets although these are more strongly pronounced at different times. The strong surge in the gold price from March through May was accompanied by a steep decline in the U.S. dollar index and a sharp increase in the price of crude.
The recovery in gold prices in June appears to be related to strength in crude, and the correlation with the U.S. dollar index appears to have been weaker. In the last month, we can see that gold moved upward while crude fell, and the U.S. dollar index rose.
At the beginning of October 2006, we can see the gold price fell as the price of crude plunged. Interestingly, though, slightly later on in the month, gold recovered as the U.S. dollar index rose, showing that the correlation between the U.S. dollar index and gold had turned positive, a rare occurrence over the last year.
In terms of trading ideas, this demonstrates to me that this recent increase in the U.S. dollar index is not being confirmed by a drop in the gold price, which would tend to make me doubt the veracity of the latest U.S. dollar move up.
Conversely, it may be that gold is being held at these levels by investors who are trying to pierce the $600 dollar level. On balance, I suspect the former.
To gain further insight into these price movements and determine which market, the U.S. dollar index or gold, would make the most convincing move, we can use the display volume chart option.
To do this, firstly, pull up the correct contract on a chart. Then, use the nearby or most active contract; the continuous one would not provide you with a clear picture. Then, select Chart Options>Basic Studies>Volume. This will then allow you to compare the volume of contracts traded in both contracts. A low volume session on either gold or the U.S. dollar index could allow us to discount the veracity of the move.
As can be seen from the screenshots shown below, volume appears to be a little more robust on gold than on the U.S. dollar, supporting the view that the recent move up in the U.S. dollar is on shakier foundations than the increase in gold. This measurement is subjective and could obviously be the result of other factors.
Gold (December ‘06)
U.S. Dollar Index (December 06)
Rowan Menzies is a Senior Commodity Analyst at Commodity Warrants Australia (www.cwa.net.au). |
