Week Ending 7/3/09
Gold was down about 1% last week. In last week's report I wrote:
Both MACD and STO have turned down and made negative crossovers, (on the weekly chart) which suggest lower prices are likely. This could be the head fake I have been concerned about. Prices could fall yet again and as long as the $850 level holds, the head & shoulders would still obtain, while shaking out a lot of players.
The above still holds true. As the daily chart below shows, the 13 ma has crossed below the 34 ma, giving a short term sell signal.
The chart also shows the various Fibonacci retracement levels coming out of the April lows and into the June highs.
The fist fib level (38.2% - 942) has already been taken out. The next target is the 50% level at 927. Overhead resistance resides at 949.
Notice the 61.8% price at 912; and compare this level with the 40 week (200 day) moving average that resides at 901.58.
This price level could be hit YET if it were to hold, the inverse head and shoulders formation would STILL remain in effect, WHILE shaking out a lot of weak hands.
This is just one of many scenarios that could happen. The market can do whatever it wants, when it wants. I'll just try to tag along for the ride.
The monthly gold chart has STO on a long term buy signal and MACD looks to be setting up to make a positive crossover.
The MACD crossover is very important. When and if it occurs it will greatly add to the likelihood that the next major leg up in the gold bull is beginning.
Silver took a big hit for the week, falling almost 5%. Last week's report stated that a test of the breakout level at $14.02 (and the 50 dma) was underway. The test has so far failed, as price quickly gave way and fell all the way to $13.39 (-4.90%).
This was a disappointing move, as a right angle ascending triangle was under construction that had a projected upside target of $19.00 per ounce. This is still possible, however, price needs to first regain and close above the $14.02 level; and quickly to boot.
The weekly chart shows price sitting at its lower diagonal trend line (slightly below). Last week, and again this week, several of the indicators show negative divergences; and MACD looks like it's ready to put in a negative crossover.
A negative MACD crossover would be turn the intermediate term trend down. As of now the weight of the evidence points to the downside.
Price would have to rally up quickly and strongly to negate the many signals. It is still possible, but not the most probable near-term outlook.
The monthly chart shows STO under a bullish crossover, while the ma's have been rising, but now show a small curl down. This may be the start of a larger move down. More price action is needed to confirm or invalidate the indicator.
Price is above the 10 month (40 week - 200 day) moving average and remains positive long term. $14.00 per ounce is an important price level on several different accounts; and more significant support resides at 12-13.
The chart below compares the price action of gold, silver, pm stocks, and the dollar. Notice how gold, silver, and the pm stocks all made highs around the first of June. Subsequently, all three began to correct.
Silver, which was up the most (near 40%), has given back half of its gain (40%), and now is up about 20%.
The pm stocks gained about 30% and have given back about half and are now up 15%.
Gold was up around 12% and has given back about half and is now up 6%.
While these three all gave back half of their gains, the dollar (since June) has risen from -5% to -4%, for a relative gain of 20%.
The precious metal stocks, as represented by the GDX index, were down -2.27% for the week. Last week's report stated:
However, MACD has yet to do the same, although the histograms are quickly receding towards zero. I will feel more bullish if and when an MACD cross occurs.
Needless to say, MACD did not make a bullish crossover; hence I remain skeptical. Price has broken below its upper horizontal trend line (upper price level of what appeared to be a right angled ascending triangle formation that has now been invalidated) and a negative 13/34 ma crossover has occurred. This suggests further downside in the near term. The other indicators have not yet turned significantly down and could be reversed but time is of the essence.
Last week's report also contained a chart of the gold miners bullish percent figures, which were overbought and breaking down below support. I mentioned that this warranted watching. It still obtains, and more now than before.
Next up is the weekly GDX chart with the various fib levels coming out of the October 2008 lows. The first fib level is at 34 and the second is at 30. MACD is pinching together and looks like it is getting ready to make a negative crossover. The histograms show a negative divergence. STO has already made a negative cross and is heading down, with an ever so slight lessening of the angle down.
Gold and or the pm stocks usually make a seasonal intermediate term low sometime during the summer to early fall. This has been a good entry point for intermediate and long term investors in the past. There is no guarantee that it will occur again the same way, but it is what it is until proven otherwise.
I will be looking to redeploy funds into these asset classes when and if the right set up occurs. I believe that CEF is one of the safest ways to own physical gold and silver, other than holding it in person.
The model portfolio allocation remains the same. I will be looking to redeploy capital when the stock market correction stops and commodities and the precious metal stocks turn up.
I'd like to increase my S&P short position and may do so if the right set-up occurs. I may also book profits if it looks like the correction is over.
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Good luck. Good trading. Good health, and that's a wrap.
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