Market Wrap
Week Ending 5/09/08
Economy
The U.S. Census Bureau reported that the deficit decreased from $61.7 billion (Feb.) to $58.2 billion in March. Imports decreased more than exports.
Exports
Exports of goods and services decreased $2.6 billion in March to $148.5 billion. Services exports were unchanged.
Imports
Imports of goods and services decreased $6.1 billion in February to $206.7 billion. Services imports decreased slightly.
Fed Speak
Federal Reserve Bank of Kansas City President Thomas Hoenig had some interesting comments during a speech to the Economic Club of Colorado.
"There is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it."
"Inflation psychology is to an extent that I have not seen since the 1970s and early 1980s."
"A sharp slowdown in growth has put the economy at the brink of a recession while, at the same time, rising commodity prices have caused inflation pressures to rise considerably."
"The current accommodative stance should be sufficient to cushion the economy from a deeper slowdown."
"As the economy recovers and credit conditions improve, however, it will be necessary for the Federal Reserve to remove the policy accommodation in a timely manner."
"Financial market disruptions, while noteworthy, are not the major story behind the recent weakness."
"Energy price increases and housing dominate this slowdown."
"Our economy is consuming more than it is producing. I believe they are more serious."
Stocks
Stock market rally ran out of gas this week. Interest rates don't seem to be helping, at least not the stock market. Bear market rally so far.
Hard for the stock market to rally when the base of the system, the financials is still falling off a cliff. As this sector goes, so goes the market.
Shanghai Market looks like a disaster.
World Market Index looks a little better, at least so far.
Bonds
Interest rates are going lower and still the stock market goes down. What gives? Ask Japan and China, they seem to be smiling all the way to the bank. But they bought bonds. Now why did they do that?
Long term bond prices are not moving that much. Watch those support lines.
Currencies
So far the US dollar can't get out of its own way; and that's with everyone and their mother short. Long term the dollar is toast, but even dead cats bounce. Look at what they are doing to our dollar - the keepers of the mint.
Euro holding up pretty well so far; notice that gold went up this week and so did the euro, while the dollar was down.
Commodities
Commodities are still hanging tough. Looks like a counter-trend correction in an on-going bull market so far. If oil reverses, however, other commodities could follow suit, at least for awhile. Caveat Emptor.
Food prices keep going up - unfortunately.
Gold
Gold had a pretty good week, although it was hard fought from oversold conditions. It gained a bit over 3% for the week. It is still far below its 50 day moving average, and so far is a short term rally.
The indicators are starting to turn up: RSI has moved from 30 to almost 46 and MACD is putting in a positive cross but needs to follow through.
Gold is still within its short term downward price channel. Long term is up.
Silver
Silver was up about 2.5% for the week, a bit less than gold was. The daily chart is in about the same shape as is gold's, perhaps a bit weaker. RSI has not turned up that much as of yet.
Price is well within its descending price channel and below its 50 dma. MACD and histograms are turning positive as is the stochastic indicator. So far it is a short term bounce from an oversold condition. Follow through is needed.
Hui
The Hui had a good week up about 6%, which means it was up double the move in physical. Price is moving up from oversold territory. It had fallen below its 200 ma and is now back above it, but is still well below its 50 ma.
RSI has turned up but may be starting to flatten out. MACD has put in a nice positive cross over and the histograms have turned up into positive territory.
Stochastic is up strongly and the ROC is about to go positive. So there is room for further upside if it wants to go that way - quite a bit actually, as the first significant overhead resistance is now the 50 ma.
GDX
The weekly chart of the GDX was up over 6% for the week, a nice move; however, it was oversold. It has regained its 50 ma, but has not yet retraced its first fib level of 38.2%. Volume could be stronger.
The dominant chart feature is still the negative MACD cross over to the downside. Histograms are well into negative territory.
Much technical damage has been done and a lot of backing and filling, and mostly likely more time must pass before a sustainable intermediate term advance can begin.
We were fortunate to have very nice returns on Goldcorp and Kinross Gold so we booked profits on Friday. Many of the other recent selections were up as well but we decided to hold.
Both the dollar and oil have a significant influence on the direction and sustainability of the gold rally. If oil and other commodities get hit, which they could, gold will most likely follow along.
Overall, commodities, and especially gold and silver, are in long term bull markets until proven otherwise. The recent lows will most likely be tested at least once more and new lows are possible. As long as higher lows are kept intact, higher highs will eventually follow. That's what bull markets are made of.
See the portfolio for recent changes - new additions, sells, and holdings.
Good luck. Good trading. Good health, and that's a wrap.
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