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The Dollar Waves Good-Bye
Weekly Market Update Excerpt
posted Aug 17, 2012
US Dollar Good-Bye Chart
- My life experience is manufacturing, management, and ownership. When the economy is based on manufacturing, products are produced, and the process improves people’s lives. Production of a product employs people in the fields of design, manufacturing, sales staff; right down the line it improves citizens’ lives. Unfortunately, this American model of building wealth is not what it used to be.
- The current US economy is now built on consumption. Borrowing to keep up with spending produces what the US government calls a “recovery”. This process is enabled by artificially low interest rates that are produced by quantitative easing (QE). Sadly, when a round of QE is complete, interest rates start to rise. That’s happening now, and it will soon cause the economy to show signs of strain.
- At that point, the Fed must supply more QE, to keep interest rates low. Each round of QE puts new pressure on the dollar. Over time, the dollar will be badly devalued.
- A huge topping process is taking place on the US dollar weekly chart. MACD is rolling over, and my key CCI indicator has spiked, and fallen through the important 100 area.
- A bearish wedge has formed within a huge symmetrical triangle. The overall technical situation of the dollar is a nightmare. My chart target is the 50-55 area, and I think it will be acquired.
TLT (T-Bond Proxy) Chart
- I mentioned the bond market several weeks ago, and suggested that a major top was forming.
- Yields are rising, and the central bank is likely quite concerned. Fed governors are now speaking out in support of more QE.
- A price break under $146 for two consecutive days should confirm that the intermediate trend has changed, from up to down.
Gold & Bond Correlation Chart
- There’s an ominous wedge pattern in place on this chart. It suggests that gold is set to dramatically outperform bonds.
- MACD is rolling over, suggesting the bond market is in trouble.
- My trigger point for a big move up in gold, and a big move down in bonds, is a two day close over $1625 for gold.
Dow Wedge Of Danger Chart
- The general stock market appears to be making an intermediate-term top.
- It’s an opportunity for aggressive investors to short the Dow in particular, because my work suggests that the Dow will not top out for another 5-10 days. I’ve put a “ten day countdown” note on the chart.
- I suggest systematically shorting a bit more each time the Dow moves 2% higher.
Gold Summer Breakout Chart
- My technical work continues to indicate gold will rise to $1850 by Nov. 2012. For the last three years, gold has put in a meaningful bottom in the summer. Note the four blue squares that highlight the July/August timeframes. Those bottoms have been followed by powerful rallies.
- This year features an MACD indicator on a great buy signal. It is more deeply oversold than at any point since 2008. Gold is now offering a great opportunity for capital appreciation.
GDX Power Volume Chart
- Over the past week, there has been a soft volume pullback in GDX. This comes after a 12% rally. Yesterday’s power volume bar is extremely encouraging. I expect more volume like this next week.
- Sentiment indicators are very favourable. A major double bottom occurs when previous bulls change their opinions, from bullish to bearish, and that has occurred.
- For the first time in several months, seasonal charts are now favourable for the metals.
- Book trading profits in the $48 area, and buy all two-day price declines.
GDXJ Target Zone Chart
- Gold stocks across the board paused for a few days, on soft volume. Yesterday, GDXJ burst higher on substantial volume. I think it is poised to move aggressively higher in the next several trading sessions.
- MACD on this chart may appear like it's becoming overbought, but don’t let that discourage you. It is barely above the zero line, and MACD on the weekly charts is just now turning higher! Hold your core positions, and buy a little bit more on any small price dip.
- The highs that were established in early June at $22.18 seem to be acting like a technical magnet. Book trading profits in that price area.
Silver Accumulation Chart
- Silver is my favorite asset at current price levels. MACD has produced a crossover buy signal, and done so in the same area as when silver was trading at about $9 per ounce.
- I’d like you to focus on accumulating silver in the $24.22 to $29.11 price zone, which is defined by two key Fibonacci retracement lines.
- Commercial traders are holding close to 60,000 longs in the futures market. This is an extraordinarily large amount, and it indicates they are very bullish.
- Note the position of the RSI oscillator. It’s rising nicely from a drastically oversold state, and I expect the silver price to soon start doing the same thing!
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Aug 17, 2012