Market Wrap
Week Ending 8/29/08
Economy
It appears that the economy is stuck in stagflation mode. The Commerce Dept. reported that real disposable personal income fell 1.7% in July following on the heels of a 2.6% decline in June.
Real consumer spending fell 0.4% in July after falling 0.1% in June. The savings rate dropped to 1.2%.
The report's price gauge tied to spending patterns was up 4.5%, which is the largest 12-month gain in seventeen years (1991).
Slower growth coupled with rising prices will not help the economy in its battle against the on-going credit crisis.
Rising unemployment and falling asset prices (houses) is a warning for consumers to cut back on expenditures; and this month's statistics show they did.
The Fed is stuck between a rock and a hard place: do they raise rates to fight inflation, knowing the damage higher rates will have on the already crippled housing market; or do they let inflation go unchecked?
Either way there will be serious consequences to pay - and We the People will end up paying - either way.
The Bureau of Economic Analysis reported that gross domestic product increased 3.3% in the second quarter. I find this number hard to believe.
Many have the rate considerably lower, some even negative, as reported by John Williams at http://www.shadowstats.com/alternate_data.
Gold
Gold closed at 831.18 down -2.32 for the week (-0.28%). It appears that the gold price may have put in a bottom, however, a retest of that level has yet to happen; and until it does, calling a bottom is risky business.
The daily chart of GLD shows a positive MACD cross over and histograms rising into positive territory. Price has not yet reached its first fib level (84.59).
Notice the gap near 81 - it may need to be filled before a sustainable move up begins. Volume has been decreasing during the rally, not the best of signs.
Silver
Silver was up slightly for the week, closing at 13.61 (+0.13%). The daily chart for SLV is slowly turning up. The gap (red arrow) still remains partially unfilled.
MACD has put in a positive cross over and the histograms have moved up into positive territory as well. Volume, however, has been decreasing with the recent rebound.
The first fib retracement level is about 10% above the current price and is the next target up (15.11).
Gold Stocks
The gold stock indices just managed to etch out slight gains for the week. Some of the charts are beginning to show positive developments.
The daily chart of GDX has a positive MACD cross over and the histograms have turned up as well.
GDX has a couple of points to the upside before the first fib level (40.77) is reached. There is more significant overhead resistance at the 50% level.
Volume has been decreasing during the rally, which is not a good omen. More buying power is needed or a retest of the recent lows will unfold.
Although positive markers are appearing, it is highly probable that a retest of the lows is needed before an intermediate term move up occurs. The point and figure chart for GDX has a bearish price projection.
The following chart caught my eye regarding how close the lows in 2004 and 2005 were; and again in 2006 and 2007. So far so good in 2008.
Looking Back
Goldcorp is one of the premier gold stocks. I thought it might be worthwhile to look back at its chart prior to the recent fall. Perhaps there is something we can pick up on.
The chart shows an inverse head & shoulders formation. In late June price broke out around 43. There was an initial expansion of volume, but then volume started to decline.
Notice the negative divergence in both RSI and the histograms. Along with volume, these were the first warnings that something was amiss.
Watch List
There has been some talk on the website and I have received a many emails concerning the recent hit the commodities have taken in general and gold and silver in particular.
Many ask: are there any commodity stocks that are not going down? Here are a few charts that answers that question.
The Hui point & figure chart has a bullish price objective of 428. It closed at 344 on the week. That would be a welcome move after the recent bout. Doesn't mean it is going to occur or when, but it will be welcomed whenever if ever.
Royal Gold (RGLD)
Not many gold stocks can boast of being above their 50 & 200 day moving averages; and that both are headed up. A positive moving average cross over was made in July (red circle).
Notice that the price never broke any earlier lows - not even the July low. That is pretty impressive price action considering that most pm stocks were getting hit hard to the downside.
MACD just made a positive cross over and broke above zero as well. Histograms have also entered positive territory. The stock is thinly traded.
Good luck. Good trading. Good health, and that's a wrap.
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