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Go Dogs Go

Morris Hubbartt
Weekly Market Update Excerpt
posted Aug 10, 2012

US Dollar Top Hat Chart

  • It is conservatively estimated that an additional $50 trillion of debt will be “accumulated” by the Federal government over the next 25 years. Mainstream investors are under the impression that the US currency is a safe place to store wealth for the long term. Unfortunately, because of enormous debt and unfunded liabilities, the dollar is losing creditability.
  • I call this chart the “Top Hat Chart”, because it looks like the dollar is wearing a top hat. That hat is a small head & shoulders top pattern. I believe it is now becoming the head of a bigger and more ominous formation.
  • I’m predicting a decline to around 81.16, and then a rally to about 82.80. From there, I am projecting a severe meltdown in the dollar.
  • The technical condition of MACD and RSI can be described as a “train wreck”.
  • My intermediate term target is the 78 area. If it is acquired, gold should be trading at $1850 or better.

Gold Target Chart

  • Historically, institutional money managers held as much as 10% of their assets in gold, but the new generation of risk takers allocate only about 1% of their assets to it. 
  • Gold has recently been re-classified as a risk-free asset, and as such banks may seek to boost their holdings. Higher demand for gold produces higher prices.
  • My suggested strategy is to hold your core bullion positions, but sell trading positions very lightly into strength.
  • Note the significant MACD buy signal that just occurred. I have also delineated what appears to be a new uptrend price channel, using two green dotted lines.
  • The slow stokes (Stochastics) look very good as well. I expect gold to reach $1850 before there is another significant correction.

GDX Budding Uptrend Chart

  • A very encouraging double bottom pattern has developed on many charts in the precious metals sector, and GDX provides a shining example.
  • There was very light volume on the second decline in this formation, making the rebound a successful test of the first low.
  • The money flow and volume indicators are demonstrating that strong buying is in play. Note the bullish action of the MACD and CMF indicators.
  • Use the weakness in senior gold stocks to add to your positions.

GDX Big Bottom Chart

  • The weekly chart provides a bird’s eye view of the sector. The A/C (accumulation/distribution) indicator is surging higher, suggesting that GDX could soon rise above the downtrend line and surpass the highs at $48.72.
  • RSI and CMF are bullish. I expect the $58 area to be acquired before year-end.

GDXJ Go Dogs Go Chart

  • Phil Eastman wrote the 1961 classic, “Go, Dog. Go”. The book describes the adventures of a group of highly mobile dogs in cars, on their way to a party. 
  • One of the highlights is all the dogs roaring forwards when a traffic light turns green.
  • I believe that junior gold stocks have performed as dogs for long enough, and the current chart seems to mimic a very green traffic light. Are the junior gold stock dogs finally “off to the races”?  I think they are.
  • Let’s review the GDXJ technicals. First, there is a significant double bottom in play. The first bottom came on record volume. A re-test of the lows showed very light volume. The second bottom became a small head & shoulders bottom.
  • Yesterday was a significant day, as GDXJ penetrated resistance at $20.35. I’ve highlighted that with a green circle and a dotted black line.
  • There is a new up channel in place, and I have set a short term target of about $22.50.
  • The action of both MACD and the FORCE indicator suggest that this target will be acquired. Book light profits between $20-22.
  • Because of the extremely oversold nature of GDXJ and individual junior stocks, I am recommending that about 80% of your position should be classified as “buy and hold”.
  • I am projecting some volatility in the $22 area, and then a powerful move to $27 or higher. The light for junior gold stocks is green, and getting greener. The bottom line is, “Go Dogs Go!”.

Silver Stocks Outperformance Chart

  • The most impressive part of the silver market right now is the silver equity sector. SIL-nyse is a silver equities ETF. Please note the strong uptrend that is taking shape, while silver bullion has been trading sideways.
  • This is exactly the type of trading I want to see, coming off the lows of this classic double bottom pattern. It’s impressive to see silver stocks lead silver bullion, just as gold stocks have been leading gold!
  • I believe this is just the beginning of an extended period of outperformance by precious metals equities, and the silver sector is the most attractive of them all!

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Aug 10, 2012
Morris Hubbartt

321gold Ltd