Market Wrap
Week Ending 4/25/08
It's Still a Bear Market
So far this is a counter trend rally in a bear market until proven otherwise.
Gold & Silver
Because of this week's action in the precious metals I am going to focus this report pretty much on those markets.
I've received a lot of emails and there have been a lot of questions on the website about "what the heck is going on", so I will try to address these issues.
Gold just made a recent new all time high. That took a lot of effort and a lot of energy. Near the end of the move it was almost parabolic, and it was running on pure adrenaline - people just wanted in at whatever the price.
I had a cousin who is an accountant call me with a friend of his on the other line that was buying gold coins for over $1000 bucks a piece and he wanted to know if that was the "right" price.
I said that it was the going price but I don't know if I would pay that much right now. The friend bought the coins. I said to myself - the top is very near for this move. And so it was.
Plenty of good analysts out there have been saying the precious metals were overbought and getting into very risky territory, so the event was not a surprise to some; as a matter of fact it was expected. Markets go up and down, even when they are in a bull market, as are the precious metals - until proven otherwise.
Bull markets must correct via short and intermediate term moves. If they didn't they wouldn't be healthy; and they would not be sustainable. Backing and filling after pullbacks makes for a stronger base from which the next move up can occur.
A house is only as strong as the foundation it is based on. The same is true with the markets. Just take a look at the chart of the dollar and you will see what happens to "things" that have no true strength and foundation or balance.
As long as higher lows are kept intact - higher highs will follow in due time. That's what a bull market is made out of: higher lows and higher highs that move from the bottom left hand corner of the chart to the upper right hand corner - in a stair-step fashion.
The bottom line is that this correction in the precious metals was needed and is a sign of "normal" market action and behavior. The late comers are getting shaken out as gold and silver and the shares move from weak hands to strong hands. It's what markets do - it isn't supposed to be easy.
The question I get asked the most is - is this the bottom. I wish I knew - I don't. But we will go over the charts and see what they may be saying. My gut tells me there is still some more downside movement and backing and filling or consolidation (time) before the next sustainable move occurs. But we live in some crazy times and anything can happen in this new world order.
HUI
First up is the daily HUI chart. It shows a head and shoulders top formation, and a short term descending price channel. The 200 ma has been breached.
Next is the weekly HUI chart. Notice it looks a bit different than the daily chart. Here there is a rising price channel; however, it has been broken below.
This suggests that more downside action may be forthcoming. It doesn't have to play out this way, as it may rally back up inside of the channel - or not. Caveat Emptor.
The red horizontal support line offers significant support. Presently price is testing its 50 ma, which is at 400.56 and the HUI closed at 410.82.
MACD has made a negative cross over and is the dominant indicator at the moment. Histograms have increased far into negative territory - some would say into oversold territory - perhaps, perhaps not.
Below is the monthly chart of the HUI. The chart shows the series of higher lows and higher highs that move up in a stair-step fashion from the bottom left hand corner of the chart to the upper right hand corner - a bullish signature.
The 20 ema has held as support through most of the bull market, although a few times it has been broken below, but not by much. It looks like it is going to be tested very soon.
MACD is curling over but has not made a negative cross over - one may be coming, however. The histograms are receding back towards zero.
RSI has notbroken below 50 and is presently at 57.38. So far during the bull market the 50 RSI level has only been breached once.
Next is the weekly chart of the gld/hui. This is compliments of a good friend - Alex. I have formatted the chart a bit differently.
The basic message here is that the ratio is at levels that in the past have coincided with bottoms.
That does not mean that a bottom has to happen immediately or that it will, but it does suggest that a bottoming process may be forthcoming. The operative word being may.
Gold
Up first is the daily GLD chart. Note: this shows the same price action as do the gold charts. I am using this to show price action - this does not mean I would or would not use this fund to invest in.
The chart shows a head and shoulders formation and a descending short term price channel. Basically, it looks a lot like the daily HUI chart.
The black arrows point to two important price levels: the first shows the April low is being tested, the second shows where significant support exists.
Below is the weekly chart of GLD. The 30 ema has provided support for most of the bull market. It has on occasion been breached. Presently it resides at 85.59 and GLD closed at 87.27.
The two black horizontal lines indicate a significant support zone. Notice that the 50 ma is at the bottom of the zone.
Volume has increased on this correction, which hints that more may be coming. RSI is above the 50 level but falling.
MACD has made a negative cross over and is the dominant chart feature. Histograms are well into negative territory.
Next up is the monthly chart of gold (continuous contract not the actual trading price). This chart goes back to 1986; and for a good reason.
Notice the three black arrows and the three blue arrows. The black arrows show where the ma's made negative cross overs, which do not happen often and are important signals.
Likewise, the blue arrows indicate positive cross overs that do not often occur as well. In other words, these crosses are important markers of the long term trend.
Right now they say the gold bull market is alive and well. The rising price channel shows the recent bull move up. Price is well within its channel. The black horizontal line is significant support.
I would not be surprised to see this level tested. This doesn't mean it has to be or will be - I just wouldn't be surprised. Somewhere between the $850 - $750 price levels seems to be possible and not out of the ordinary; nor would it mark the end of the bull market.
It is a needed correction that is occurring. As long as higher lows are kept intact and there are no long term crosses as shown by the black arrows, the bull market is in force until proven otherwise.
Silver
Up first is the daily chart. It shows silver in a descending price channel. Silver is well below its 50 ma and appears to be headed towards a test of its horizontal support area near $16.
Its 200 ma is at 15.25 and it would not be a surprise to see this price tested before all is said and done. Doesn't have to, but it may.
MACD has put in a negative cross over and the histograms are well into negative territory. RSI has made a small curl up.
Below is the weekly chart for silver. It shows a rising price channel, which has been broken below. This suggests that more downside action may be coming.
There is significant support at the horizontal trend line at $15.00. Also, notice that the 50 ma is at $14.90.
MACD has made a negative cross over and RSI is testing the 50 level. The histograms have gone negative as well.
Last up is the monthly silver chart going back to 1982. As the long term chart of gold showed, silver has also made positive cross overs that do not often occur.
As long as higher lows are kept in place and no negative crosses are made the bull market for silver is still alive and well - until proven otherwise.
Commodities
Some are claiming the end to the recent bull market in commodities, especially the precious metals and oil. I do not, as of now, see any end in sight. I see a correction in an on-going bull market, which could and may change, but so far it has not.
The markets are under manipulation - they always have been since day one, as it is in the behavior of man to do such things until such time that it isn't, which will occur but it has not as of yet. Things are building up that will proceed such change - fate is a funny thing.
The markets are however a law unto themselves, and although they can be messed with and steered this way and that - they cannot be completely controlled. Any imbalances that build up will be balanced, it is the way of nature - in all things, and the markets are no exception.
Our money is supposed to be gold and silver coin, it says so right in the Constitution, as plain as day. It seems that only Congressman Ron Paul knows what our Constitution mandates; the other representatives seem to be representing something else.
None of which has been lost on the world's opinion on the U.S. dollar or Federal Reserve Note, which has lost 95% of its purchasing power since the Fed was created. Hell of a job they're doing. Gold has noticed as well.
It does appear that certain players want to see the commodities go down in price, and they may very well. Oil has been in a blow-off stage for awhile now, which is getting very risky to be sustained without a correction of some degree.
So, there is risk in the commodities of a short to intermediate term nature, however, the long term trend is still up until proven otherwise.
One should not invest in gold or silver because they are honest and lawful money according to the Constitution. Monetary theory and policy is one thing, investing in gold and silver is another. The two should not be mixed without understanding the differences.
One invests in things because they believe they will go up in price. One wants to return to honest money because it is what our Constitution mandates, and because it would provide money that is sound and does not lose purchasing power like paper money does.
Ideology has its purpose and is important, but investing on it is not advisable. Also, everything we buy and sell is priced in dollar bills or Federal Reserve Notes, which are continually losing purchasing power.
A profit made on buying gold and silver when exchanged for paper money that is losing purchasing power may not quite be the profit one thinks it is.
Needless to say - the fundamentals are behind the bull market in gold and silver - it's a reaction to the weakness of the U.S. dollar and its loss of purchasing power.
It cannot be changed, as paper money is just that - paper, and nothing more, mere promises to pay - not payment, nor the means to pay.
And yes there is market manipulation - but Fate is a funny thing, just ask the three sisters.
Good luck. Good trading. Good health, and that's a wrap.
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