Week Ending 5/15/09
For the week gold gained just under 2%. GLD closed above the 90 price level I mentioned last week, as well as its 50 dma, both of which represented overhead resistance at the time. This is a sign of strength.
RSI and STO are moving up, however, they both show slight negative divergences that say: heads up and pay attention.
CMF money flows are now in positive territory, which signifies accumulation is occurring. The prior negative readings indicated selling pressure that has for now abated.
The 50 dma (89.35) should act as support for any short term correction, while significant support lays further down at 87.5 - 85.0 (horizontal yellow band).
The next chart below is the weekly GLD chart, which shows the inverse head & shoulders formation remains intact.
The only thing I don't like is that a lot of analysts are now talking about it. A few months ago only a few recognized it. This makes me a bit concerned.
RSI has turned up, STO is crossing over, and MACD appears to be setting up for a positive crossover. CMF shows positive money flows.
The weekly chart is very promising and suggests the next leg up in the gold bull is about to unfold. Short term there may be one more correction to shake out the weak hands.
The dollar looks like it has started a short term rally, at least for awhile, which makes sense, as the dollar and the stock market have been moving inversely to one another, although there is no guarantee that they will continue to do so. But as stocks fell this week the dollar did rally upwards.
First the daily chart of the dollar versus the S&P. As the chart shows, the two have been moving in opposite directions or in an inverse relation: stocks up and the dollar down and vice versa.
Next up is the daily chart of the dollar index. Notice that its present price level of 82.97 is very close to the 61.8% Fibonacci retracement level of its advance from the Dec. 2008 low of 77.69 to the March high of 89.62. These price levels are indicated by the larger Fibonacci lines (red) to the left of the chart.
To the right of the chart is another set of Fibonacci lines that show possible targets for the dollar's rally if it continues.
Also, RSI and MACD are showing positive divergences: price made a new low, but RSI and MACD did not follow suit and confirm.
Notice the 50 dma is falling and looks like it will come into play. It actually looks like a negative cross of the 50 and 200 ma's may be starting to set up, which would be a long term negative development for the dollar.
Perhaps investors are realizing that the huge sums of debt/credit/money being thrown at the crisis are going to heavily weigh on the dollar's value or purchasing power.
Notice at the bottom of the chart the oversold stochastic STO readings. Generally when the index is under 20 and turns up and moves above 20 it signals the start of a change in the short term trend.
Everyone is bearish on the dollar right now, which may mean that too many people are on one side of the boat - the wrong side.
However, today's markets are very fickle and violent, oscillating back and forth between greed and fear; hence anything can happen from day to day as we have seen. Expect the unexpected and be prepared.
Precious metal stocks, as represented by the Hui Index, barely moved this past week (+0.42%). For the year the Hui is up 13.1%, while gold is up 5.6%.
The daily chart below shows a series of higher lows and higher highs and technically looks quite promising. Note it has made a new high for the year.
However, the index almost hit the RSI 70 overbought level and has since turned down, although it wouldn't take that much for it to turn back up. STO at the bottom of the chart is flashing overbought readings as well.
The precious metal stocks appear to be a bit extended and may need to consolidate their recent gains. If gold goes up it will put a wind to the stocks back. If the stock market goes down, it may pull the precious metal stocks down with it.
At times the precious metal stocks can move inversely to the overall stock market. At other times they move in the same direction. Thus a tug of war ensues - the question is: who will win?
In the end the gold stocks will be up, but the short term is in question at this point in time.
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Good luck. Good trading. Good health.
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