Week Ending 6/12/09
Gold continued down this week, losing -15.50 (-1.62%) to close at $939.20 (continuous contract). In the market wrap two weeks ago I suggested that gold was likely to correct. The following week it was down (-2.5%). It is now down 4% over the past two weeks. Last week's report still obtains, so it will simply be restated:
Horizontal support (blue line) has been broken below. RSI has turned down from overbought levels (70) and is falling. MACD is curling over and looks ready to put in a negative crossover. The first target is the 38.2% retracement level out of the April low.
Notice the 50 ma and the 50% fib level converge near the same area (90-91). It would not be surprising to see the 50% level tested during the correction that is unfolding.
The only thing that changed on the chart is that price dropped 1.64% and the indicators all turned down further - MACD putting in the negative crossover that was alluded to in last week's report.
Notice that the first fib retracement level has been reached and with the negative crossover it looks like the next target at the 50 ma and 50% fib level will be tested.
Continuing on from last week's comments, which still are pertinent:
On the weekly chart below, the bullish head & shoulder pattern dominates the chart. Any correction should be short-lived, but could be quick and violent. It is possible for gold to test the $900-$920 spot price (90-92 GLD) level.
For an inverse head and shoulders formation to be valid, volume up and out of the right shoulder should expand and the breakout above the neckline MUST occur on expanding volume; otherwise a false breakout is possible.
This inverse head & shoulders could be very strong if it develops and makes a valid breakout that is confirmed by expanding volume.
Once the neckline is broken it is imperative that resistance turns into and holds as support. If this occurs the next major leg up in the gold bull will be starting.
Upside targets are at $1200-$1300 if the formation is confirmed. The one thing that bothers me is that a lot of analysts have been talking about the formation. A couple of months ago there were only a few discussing the possibilities. Now there are many.
As the weekly chart below shows, the inverse head & shoulders formation is still intact. I stated last week (above) that "something" might happen to throw investors off the formation that many are now talking about.
After giving it some thought I've come up with the following, which is mere speculation and nothing more.
I think we will get a short term low fairly soon (week or so) and then a rally. Such a rally, if it occurs, will look like a textbook head & shoulders formation. Everyone and their mother will be ready to play it.
Volume will be extremely important. We may get a false breakout (at first) that retests and then breaks out. This would throw many off track. It doesn't mean it's going to happen, but it is a possible scenario to keep in mind. As I said: volume will be the key. Volume must expand to confirm any breakout.
A retracement to the first fib level would definitely shake some weak hands out, while leaving intact the head and shoulders formation. It actually "lines" up better in time duration of the construction of the left shoulder to the right shoulder.
Silver had a tough week, falling -2.53% to close at $14.82 (continuous contract). Coupled with last week's -3% loss and silver has dropped 5% in the last two weeks.
This was to be expected. As I said in last week's report:
The first target is the horizontal support line on the daily chart at $14.50. More significant support resides at $13.50-$14.00 and again at $12.50-$13.00.
The negative MACD crossover alluded to in last week's report occurred this week and suggests further downside action. The above support levels still obtain.
Continuing from last week's report, which remains timely:
The monthly SLV chart is as bullish as the weekly GLD chart. It shows a powerful MACD crossover is setting up. STO has already made a positive long term crossover.
After the present correction runs its course, the upside potential for silver looks strong.
The second monthly chart shows the various Fibonacci retracement levels that offer long term support.
The precious metal stocks had another tough week, falling over 4%. In the last two weeks they have fallen over 10%, which is of no surprise to regular readers of this report.
Two weeks ago I mentioned that the pm stocks were overbought and due for a correction. Such has come to pass. It will eventually lead to a good buying opportunity, but not yet.
The daily chart of the Hui Index shows horizontal support (top red line) is being tested as we speak. Below that level (350) lays the 50 ma and lower support near 325 where both horizontal and diagonal trend lines converge.
If the short term correction morphs into an intermediate term correction, which is more likely if the overall stock market heads south, the 200 ma offers long term support further below.
Next up is the weekly chart of the GDX Index. Both RSI and STO have turned down, with the latter making a negative crossover. This suggests there is more downside action to come.
The chart shows the various Fibonacci retracement levels out of the Oct.-Nov. lows. The 38.2% retracement near 38 represents short term support.
If the correction does develop into an intermediate term move the 50% level at 30.52 could come into play. Either way a buying opportunity waits if we can remain patient. A short term play may develop, followed by a longer term move later.
The monthly GDM chart shows a long term secular bull market in place with a significant cup and handle formation intact. Presently, the handle is still under construction and obtains unless 800 is broken below.
Notice that STO has made a bullish crossover that is a positive long term signal. The chart shows that after previous crossovers significant moves have occurred. The 2008 correction took prices below the handle, but they have since recovered.
The above is a short excerpt from the full market wrap report that can be found at the Honest Money Gold & Silver Report website.
We are so bullish on gold that we are offering a money back guarantee to all new subscribers.
If gold does not make a new high during 2009 your subscription will be refunded in full. Stop by and check it out. A free trial subscription is available as well.
Good luck. Good trading. Good health, and that's a wrap.
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