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What about gold here?

Richard Russell snippet
Dow Theory Letters
March 24, 2006

Extracted from the March 23, 2006 edition of Richard's Remarks

There are certain times when I stand back from the stock market and say, "Let 'er rip without me." This is one of those times. Stock valuations are very rich, and as the major stock averages rise, volume has been contracting. So frankly, at this point I would just rather own T-bills than stocks. I guess the real reason that I won't sit with this market is that I haven't the nerve to ride through the inevitable declines. And the reason for that is that I'm afraid that each decline could be the beginning of a major down-wave, and the last thing I want to sweat through is exactly that -- a major wave to the downside.

What about gold here? To answer this question, I'm going to refer to my weekly charts along with their (blue) 20-week moving averages and their (red) 40-week moving averages. These are charts that I don't believe you'll see anywhere else. The first chart below shows weekly gold on logarithmic or ratio scale. Over the last seven months gold has gone almost parabolic. This is powerful almost vertical action, and ordinarily it calls for a major correction. Whether that's what gold is fated to undergo no one knows, I certainly don't.

Ideally, for the bulls, what we could see here is an extended period of sideways action which allows the 20-week moving average to rise, thereby putting a sort of technical floor under gold. The 20-week MA for gold comes in at 532, and it would be "nice" if gold would consolidate and hold above 532. Such a consolidation could take gold into June or July and would allow the excitement to die down. I prefer gold rising with little fanfare and nobody noticing. That could happen following the current correction.

Below we see the weekly chart of silver. Here the story is that silver is even stronger than gold. Proof is that in the most recent week silver hit a 22-year high. Like gold, silver is in need of a rest. The silver iShare is now a fact, and it wouldn't be surprising to see silver correct, now that iShare silver is available for the first time. There's been talk of the iShare taking silver off the market, thereby triggering a short squeeze. Maybe, but no sign of such action yet.

lots more follows for subscribers...

Mar 23, 2006
Richard Russell
website: Dow Theory Letters
email: Dow Theory Letters

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