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What's in store for gold in January?
Weekly Market Update Excerpt
posted Jan 6, 2012
UUP (US Dollar Proxy) Chart
- No Fed Chairman wants to be the villain, especially when it comes to the vital matter of electing the President of the United States. It would not surprise me to see 2012 go down in financial history as “Year Of The Fed”.
- The 75 trillion dollar unfunded liability budget deficit is future debt that must be paid. It is a debt bomb in the early stages of detonation. Debts must be paid, but how must they be paid? Wall Street and Washington believe the electronic printing press can replace your constitution. They are wrong, but they are in control.
- National debt numbers are exploding upwards; debt is up about 50% in four short years. The debt rating agencies are warning of future downgrades. America was the greatest creditor in the history of the world. Now we are the greatest debtor in the history of the world. The American dream has become a worldwide nightmare.
- Technically, the US dollar is being hit by distribution, following a black candle day that appeared several weeks ago. A technical disintegration of the UUP chart (US dollar ETF) is very bullish for gold and silver.
- The MACD histograms show a picture of technical disintegration. Think about how little the US dollar has really rallied, given that the euro’s ability to even exist has been seriously questioned by major institutional analysts.
- If the dollar was fundamentally strong, and the nation was a creditor instead of a huge debtor, I would have projected the dollar to be trading at over 100 on the $USD index today.
- Instead, it is fighting with 81, and exhibiting miserable technical action. The dollar probably has the worst fundamentals of any currency in the world. Currencies should be bought for long term trades. There are no compelling reasons to buy the US dollar at this point in time.
Gold Double Bottom Chart
- I want you to examine this daily chart carefully. It is showing strong evidence that a double bottom could be in place. Note the lighter volume also a slightly lower low, which is classic bottoming action. These types of bottoms are generally missed by the majority of investors and traders.
- Most investors sell into them, rather than buying them, and that is exactly what likely happened here. The sentiment numbers show the majority of investors were so fearful that they have likely missed this classic bottom in gold.
Gold Super Highway Chart
- As gold began what appears to be a bottoming process, it received very heavy support from commercial buyers. I think the most likely scenario is that gold will rise to $2300 price point, and probably by June or July.
Gold Bulldozer Chart
- A second scenario is also quite possible, and that would see gold enter a longer trading range with an upwards bias, like occurred after the lows of 2006 were hit. The current technical action in gold is quite similar to that period.
- The market then and now has been supported by repeated bursts of commercial buying into the larger sell-offs. In the 2006 situation gold experienced numerous corrections over the course of a year. Then the price surged about 100% in just a few months.
- If this is the scenario coming to gold then the market will likely appear to top out in the $1700 area. That “top” would be followed by a long series of frustrating pullbacks and small rallies, with the price really going nowhere. My target of $2300 in this scenario has a timeframe of December 2012, and I urge investors to remain committed to your gold positions.
GDX Sentiment Chart
- Sentiment indicators indicate that much higher prices are likely. Gold stocks have made decent upside progress in the first week of the year. The action of the OBV (On Balance Volume) indicator is suggesting that gold stocks may be at a key low right now.
- OBV is a highly effective tool for identifying turning points in this market when used in combination with market sentiment indicators. We might see a correction for a few days next week, but I am looking for gold stocks to move generally higher this month.
GDXJ Support Zone Chart
- The junior gold stocks undoubtedly are going higher in an ongoing bull market in gold. Many of these stocks will be takeover candidates. That is especially true when shares are as depressed in price as they are now.
- I see gold juniors being stellar performers over the next several years. This is an election year, election years mean governments spend money and like to see stock markets higher. Notice the support level in the $22-$24 price range. I believe the buyers there will be proven to have very strong hands.
Silver And Gold Stocks Chart
- I have included a chart this week showing the similarities and differences between gold stocks and silver. These assets trade very similarly, as you can see on the chart. When silver is moving, generally gold stocks are also on the move.
- I have made the point in the last weeks that silver is a great asset to accumulate. Backing up the truck for a full load of silver all in one shot is a dangerous proposition. Physical silver is an asset to buy, store, and then wait for a good exit point, and trade it for gold.
- Silver is more volatile than gold, but generally less volatile than gold stocks, something that may surprise many of you who believed silver was “too risky” in the past. Consider owning some silver, not the entire world’s supply. Keep a balanced portfolio, and put some silver into it.
Silver Twin Tables Chart
- On any further “risk on” general asset price weakness, silver is my asset of choice. I bought physical silver a week ago at a spot price of about $27 and have orders with my dealer to buy more around $22.50.
- To be an owner of silver one must be prepared to leave some purchasing cash on the table. You should have a plan to keep buying the metal in the case of an unforeseen market decline. I see silver hitting new highs in 12-18 months. These quick and hard declines have often occurred with little or no warning, and I expect them to continue happening for a long time.
- MACD looks very good here, but RSI can still drop a little lower. I would not be surprised to see silver move sideways or even decline for 2 to 3 more weeks, but I think the next big move will be up, rather than down!
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Jan 6, 2012