Palladium and Another Potentially Strong Buy Signal on the Dow?
"To believe in one's dreams is to spend all of one's life asleep." ~ Chinese Proverb
In the last 9 years, the Dow has only traded twice bellows its 99 day EMA (exponential moving average), and each time it did, it mounted a very strong rally. It is now trading at the furthest point it has ever traded from its 99 EMA in the last 9 years; this Monday (9th of March ) it was 3453 points away from its 99 EMA, think of this a rubber band stretched to the limit.
To show you just how extreme this current move is we have plotted the 99EMA on a 50 year chart of the Dow and there is only one episode in the last 50 years of trading history to match the current extreme downward move (the green box).
From Oct 1973 to 0ct 1974, the Dow traded 34% below its 99 EMA and 9 months later it rallied over 50% from its lows and eventually went to trade well above its 99 EMA.
Is it just a coincidence that as of the 9th the Dow is now trading 34.5% below its 99 EMA, will the Dow mount a rally in the same way it did back in 1974?. After bottoming in Oct 1974, the Dow traded sideways for awhile and then suddenly exploded upwards.
Safe haven markets such as Bonds and Gold have not surged to new all time highs even though the Dow has put in a series of new 52 week lows. Bonds topped well in advance of the markets dropping to new lows (almost 10 weeks in advance of the markets hitting new lows). Gold briefly traded to 1004 and then immediately proceeded to correct; it pulled back on the same day the Dow took out its Nov lows and since then has not been able to rally past the 1000 mark. If money was flocking to safe haven markets, bonds and or Gold should have already put in a series of new all time highs.
The Dow utilities also traded below their Nov lows, but instead of flashing a new sell or a negative divergence signal in the process, it flashed 3 very strong positive divergence signals and several short-term buy signals. Surprisingly the Dow transports also flashed several buy signals at the same time.
Additional comments 26th March, 2009
The Dow did mount a strong rally as expected after being stretched to its limit as it was trading 34.5% below its 99 EMA, which marked a new historical low.
On the short term time frames, the Dow is rather overbought, and so it would be normal to expect some sort of mediocre pull back, before it powers to its next target. However, as the markets continued to put in new lows despite being extremely oversold, they could on the same token continue to put rally despite being extremely overbought. Our first targets are in the 7800-8100 ranges and are secondary targets fall in the 8600-9000 ranges. After that depending on the action (we will only be able to tell fully when these targets are hit), the markets are either going to mount a strong correction or trade sideways and build up energy to mount yet another rally. As stated before we will only be in a position to determine the outcome after the Dow trades in the 8600-9000 ranges.
For now risk takers could use all strong pull backs to open up long positions as the short and intermediate term trends are bullish.
Extracted in part from the March 2009 Market update
Palladium has tested the 180 price point level several times over the course of the last 6 months and to date this zone has held and in doing so has flashed several very strong positive divergence signals, and two long term buy signals. From a short term and 3-6 month perspective, one can expect the action to remain very volatile, but from a 1-2 year perspective, Palladium is trading at an insanely cheap level; investors will only realise this later, but by then it will be too late to act.
Palladium is a very volatile metal and when it moves the moves are usually explosive in nature; this downward move has created an unbelievable long term buying opportunity for all those who failed to open up long positions in bullion when it was trading at these levels from Oct 2004 to July 2005.
On the short to intermediate time frames, palladiums strength will be determined by how it responds to the corrections in the Gold and Silver markets. If during this corrective phase Palladium can hold above 180 even if Gold trades down to the 720-750 ranges, then it would be very strong sign that an explosive move upwards is not to far off in the makings. Expect this market one day to move in bursts of 30-50 dollars a day. If you have no position in bullion, now would be a great time to add to your positions and continue to add to them on all pull backs.
"Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world, and all there ever will be to know and understand." ~ Albert Einstein 1879-1955, German-born American Physicist