Week Ending 9/04/09
Last week palladium was highlighted in this report, as it was making new highs, which suggested the other metals would soon follow. Gold reacted with a big move, adding $39.50 (+4.14%) to close at $994.40. In last week's report on gold I wrote:
"A symmetrical triangle has formed and price is getting compressed tighter and tighter. Soon it will be forced to break out above, or down below its trend lines."
As the chart below shows, gold broke out and above its upper trend line. The June high has been bettered and the next target is the Feb. high. Notice the expanding volume on the breakout. Short term things are heating up.
Quoting again from last week's report,
"The weekly chart shows the inverse head & shoulders formation still intact. As long as the low of the right shoulder is not violated, the set-up exists, but needs to be fulfilled and confirmed."
When gold moves it can do so quite fast, as evidenced by the next chart. In one week's time gold is knocking on the door of overhead resistance represented by the neckline of the inverse head & shoulders formation.
Notice the sideways trend (slight bias to the downside) of MACD in the weekly chart above since March. A positive crossover has occurred, but it needs to be confirmed by further positive price action.
Slight divergence exists, with lower MACD highs compared to higher price highs, which can quickly be resolved - in either direction.
A pullback that tests the breakout is quite possible, as it would tell if resistance has turned into support. Gold may just keep on trucking from here and blast through 1000 - or not, at least not right away.
Most in the gold community are expecting the same thing - an upside breakout of the inverse head & shoulders formation; and that has me a bit concerned. Mr. Market doesn't usually make it easy to tag along for the ride.
Gold is in a bull market, however, and in a bull market one should add to positions on pullbacks that hold support. Just remember: breakouts need to be confirmed or they can turn into failed breakouts.
The point & figure chart below shows a bullish ascending triple top breakout occurring on Sept. 2, 2009.
The following comments appeared in last week's report. Because of their timely significance they remain as relevant today as they were last week:
The daily chart below goes back into 2008. It shows that the GDX broke above overhead resistance in late May, broke below it again in July, and has now broken above it once more, consolidating sideways in a compressing symmetrical triangle. A series of higher lows have been put in place all year - now a higher high needs to be put in to validate the next leg of the bull market.
PM stocks put in a big performance this week gaining over 12%. This is a bullish sign for the physical metal, as the stocks are confirming the present advance. It has been a while since the gold complex acted in concert. Now it needs to be sustained.
The chart below shows this week's breakout that is challenging the June high, with last year's (2008) highs of 50 & 55 looming further above.
If price can sustain itself above 45, turning resistance into support, another leg up in the gold bull will unfold. From here the next target is last summer's (2008) high near 50, and after that the March (2008) high near 55. Continuing from last week's report:
The chart looks promising; however, I'm concerned that the gold stock sector is exposed to overall stock market risk. The stock market is overextended and if a correction occurs, it could take the gold sector down with it. It is also possible that the gold stocks move counter to an overall stock market decline. Anything is possible.
The above still obtains, as does a new divergence in RSI, while CCI is well into overbought territory. A pullback would not be unreasonable.
The above excerpt is a small sampling of this week's complete market wrap report, as published on the Honest Money Gold & Silver Report website. All major markets are covered with the emphasis on the precious metals. In last week's report, the portfolio allocation to the precious metals was bumped up. Silver ended up having an even better week than gold. The markets are at important inflection points and there will be some big winners and losers just ahead. A free trial subscription is available by submitting a request to: firstname.lastname@example.org.
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