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Weekly Market Update Excerpt
posted Apr 6, 2012
UUP (US Dollar Proxy) Volume Chart
- My technical work continues to paint a dismal future for the dollar. The Fed’s announcement on Tuesday that no further quantitative easing is needed caused the dollar to rally a bit, but on terrible volume.
- Volume analysis can be a truth detector for the major trend. What the current US dollar volume tells me is that this rally won’t last, and my analysis of the commercial money group shows them holding and building substantial counter-dollar positions.
- Fiat currency should not be your main asset to store wealth in the present situation. Gold and silver are the best places to house your hard-earned money.
- While the gold market’s fall has made the headlines, the fact is that the dollar has barely rallied on higher interest rates, just as it barely rallied during the euro crisis. Fundamentally, the dollar is in a bear market that probably will go on for many more years.
TLT (US Bond Proxy) Train Wreck Chart
- I view the bond market as a ticking time bomb, with an unknown time of detonation. At the current time, my technical analysis suggests that the bond market has the characteristics of a major top.
- It’s true that in the event of stock market panic, bonds could receive substantial liquidity flows, but the problem is that un-payable debt obligations in the USA are making bonds more and more a fundamentally dangerous investment.
- I suggested that the bond price could move back up to the broken neckline of the head and shoulders top chart formation, and that has happened. This rally comes on softening volume, which indicates that the bond may be ready to roll over and start a renewed decline.
Gold Fractals Chart
- Gold continues to be accumulated by central banks in Asia. Asian governments are also stockpiling other commodities, like oil and silver. The “trend is your friend” adage carries even more weight when major buyers are waiting on more price weakness to buy more gold.
- Technically, the gold price is setting up to move to previous highs, and above them, based on a huge inverse head and shoulders formation. My upside targets for the intermediate term are $1850, $2100 and $2300.
- In the meantime, I know it’s frustrating for gold investors to watch the price just drift lower and lower. I believe that one of the sources of frustration is that many investors are still trying to trade gold like they did when the price was much lower. A $200 move now is probably something like a $30 move was in the early stages of this bull market.
- Investors should change with the times. It’s more to difficult predict small moves now than it was just a few years ago. While the picture on the gold chart is evolving constantly, the fact is that the overall bullishness of the chart has been enhanced.
- Fractals occur in nature in mathematically regular and irregular form. The head & shoulders pattern on the gold chart is evolving in a similar way to one of nature’s fractals, with a series of shoulders forming on the right side of the chart that match the ones on the left side. This process is understandably creating frustration amongst investors, but it is creating a much more bullish picture. I think you'll find that any gold Easter egg is worth the hunt.
GDX Williams Indicator Chart
- This chart is very encouraging. This monthly Williams indicator chart demonstrates that based on positions of the Williams indicator, GDX is more oversold now than when it was trading at $15.64 in 2008.
- The 38.2% Fibonacci retracement line is near the current price of GDX, and rallies often begin from around that line.
- On Wednesday, I issued more buy signals for both GDX and GDXJ. The gains from here could be enormous because the entire sector seems so grossly undervalued.
GDX Versus Stock Market Chart
- This chart shows the action of GDX against SPY, which is an S&P 500 proxy ETF. The RSI oscillator shows that gold stocks are more oversold now than at any point since the lows of 2008.
- MACD is also close to going to a record oversold position.
- The price is now compressing to the downside and appears to be forming quite a powerful wedge pattern, and indicates much higher prices are coming.
GDXJ Double Bottom Chart
- Wednesday’s session was telling because it was associated with panic volume, yet the closing price was well off the lows.
- The price candles on the candlestick chart are showing many days in the last several sessions with long tails. These types of candles typically demonstrate a market that is searching for a bottom.
- While it’s disappointing that the head & shoulders bottom failed, there is now a potential double bottom formation. The next few days of trading will be important. I look for an initial rally that will fill the gap between $26-$26.50, followed by a light pullback, and then a run at the $30.55 high.
Silver MACD Indicator Chart
- Silver’s technical action continues to mimic the 2008 bottom in many ways. MACD went to even lower levels than were seen at the lows of 2008. I see this market moving sideways in a chop, followed by a move up to the $44 area. From there, I expect a 2nd sideways chop, followed by new highs, likely in time for Christmas 2012!
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Apr 6, 2012