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Weekly Market Update Excerpt
posted Nov 30, 2012
US Dollar Pillars Of Blood Chart
- At the end of each month I study the closing price for the US dollar, using my “Pillars of Blood” chart. The dollar is flirting with breaking down from the 80.50 area. I consider that price to be a significant line in the sand, particularly at month’s end.
- Where the dollar closes at the end of each month is vital to projecting the next major move. A November month-end close below 80.50, would suggest that the dollar’s rate of decline could dramatically accelerate.
- The MACD indicator is very weak, and suggests more downside price action is coming.
- The best alternative to the dollar is gold!
Gold QE Power Bars Chart
- Many market pundits seem to have forgotten how strongly QE can affect the price of gold. This gold chart highlights those effects, with a broad green “chart brush”.
- Note the thick green bars. They highlight the gold price action during QE1 & QE2. I believe QE3 (and possibly QE4) will produce very similar results. When the Fed purchases bonds in the open market with printed money, gold tends to rally for a significant period of time.
- Please note the action of the RSI oscillator. When RSI moves towards 50, while QE is being implemented, it’s been a very good time to buy gold.
- The MACD indicator is particularly interesting, at this point in time. A head & shoulders bottom pattern has formed, with very bullish implications.
- Gold seems set to perform more like it did during QE1. My “QE3 targets” are $1850 and $2015.
HUI Super Cycle Chart
- This key chart highlights the cyclical uptrends that have occurred in gold about every 3 ½ years. In May of this year, a fresh cycle seems to have started, which is good news for gold stock investors.
- When major bottoms are formed, sentiment is usually extremely negative, and smart money is seen buying in size. Mark Hulbert’s statistics showed that most gold analysts were very bearish during the formation of the May-July lows. At the same time, COT reports showed that commercial traders were aggressive buyers. As the bull move accelerates, I expect volatility to grow, too. Traders should expect bigger price swings, and set higher profit-booking targets!
GDX Monster H&S Bottom Chart
- One of the most dependable formations in technical analysis is the head & shoulders pattern. Mathematically, this one indicates that GDX should rise to $72.
- These large H&S formations tend to occur at the beginning of major trends, and the highest price reached can be quite a bit higher than the mathematical target.
- To be successful in this market, I suggest trading a portion of your portfolio, while holding a large core position. This strategy can lower your position cost, while keep you fully exposed to upside reward.
GDXJ Monster H&S Bottom Chart
- The most painful market in the gold sector has been the gold juniors. It offers the highest potential gain, and the most risk.
- The GDXJ chart has a large inverse head and shoulders formation in play. The original double bottom pattern is now part of a huge head. Note the action of the RSI oscillator at the low points of the left shoulder, and the head.
- Strong rallies occurred in both instances. I am projecting that a big rally occurs this time, too. It should carry GDXJ well above the neckline of the H&S pattern, triggering a lot of buying from momentum players.
- My target for this move is $37. That’s a significant gain from current price levels. Hold your positions, because as the precious metals rally accelerates, junior gold stocks should play the leading role!
Silver QE Power Bars Chart
- Quantitative easing is positive for gold, and the effects on silver are even more powerful. This chart highlights the enormous gains that silver achieved during both QE1 and QE2.
- My focus is physical silver, because of concerns about the banking system and growing volatility.
- My short term target is $44, which should be acquired at about the time that gold reaches $1850. To put that in perspective, I expect silver to gain about 29%, while gold gains 7%. That’s an outperformance ratio of about 4 to 1!
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Nov 30, 2012