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A Little Gold Fright Is Alright

Morris Hubbartt
Weekly Market Update Excerpt
posted Nov 16, 2012

US Dollar End Of The Road Chart

  • The US dollar counter-trend move to the upside is probably nearing the end of the road. Firm resistance resides at the 81.25 area, and all of my indicators point to lower prices.

  • Once the countertrend move higher is complete, the large head and shoulders top pattern should take center stage. A decline below 80.50 could trigger a mini-crash.

  • I am forecasting lower general equity prices in the near term. That could offer some support to the dollar, but it will probably be negligible.

Gold Cup and Handle Chart

  • The fiscal cliff has increased volatility in most markets. Gold is bucking that trend. An enormous cup & handle formation continues to unfold, in textbook form.

  • Note the volume pattern that occurred around the time of the US election. This appears to be “weak hands” getting flushed out, and smart money covering short positions.

  • Technically, the market is poised to move higher. The oscillators are in an ideal spot, and volume analysis suggests the bulls are clearly in control.

  • My $1850 target should be acquired by late 2012. Early in 2013, gold should rise further, to $2015.

Dow Diamonds (Dow ETF Proxy) Crash Update Chart

  • The broader market continues to struggle. A notable characteristic of the current market is major distribution on down days, and weak volume on up days.

  • My technical works suggests there will be a decline to $122 for the “diamonds”, and to 12,200 for the Dow.

  • In the short term, I’m looking for a rally to test the neckline of the small head & shoulders top pattern. From there, a panic sell-off could begin.

GDX Neckline Fright Chart

  • Gold equity investors are generally weary. Some are afraid. Before you give up on gold stocks, I’d like to point out some key facts.

  • First, the decline this week brought GDX to the key Fibonacci 61.8% retracement level. About a week ago, silver turned higher from the “Fib 50” line, and it’s held a good portion of that gain. I think that bodes well for GDX. It’s normal for gold stocks to exhibit much greater volatility than gold does during market panics.

  • GDX and your favorite gold stocks could stage a surprising bounce from the Fib 61.8% line.

  • The textbook double bottom pattern formed by gold stocks last summer now has a textbook pullback to the neckline area of that pattern. I would have preferred the decline to have halted near the “Fib 50” line, but this chart pattern is still very bullish.

  • The power breakout volume area was also tested this week, making me confident that GDX will turn higher, and acquire my $66 target.

GDXJ Volume Analysis Chart

  • The junior gold stocks have declined into important volume-based support areas (VBS). At this point in time, they look much stronger than the senior stocks.

  • A pullback into the neckline area of a classic double bottom pattern is setting up GDXJ for a trending move to the upside.

  • The RSI indicator is now near the 30 area, which is very bullish.

Silver Fib 50 Launchpad Chart

  • Silver touched its 50% Fibonacci retracement level last week, and rallied strongly from there.

  • We may be entering the eye of the debt storm, so I prefer to buy physical metal, and hold it for long term capital gains.

  • The immediate target is $35.44, and once that is acquired I am projecting that a stronger move will carry this mighty metal to the $44 area!

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Nov 16, 2012
Morris Hubbartt

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