Week Ending 10/02/09
Gold had a good week, gaining $12.10 (+1.22%) to close at $1003.00 for a weekly gain of +1.22%. So far this year gold is up 13.7%.
The daily chart below shows GLD testing its recent breakout above the June high, as marked by the dotted horizontal support line. Gold has already tested this level previously and bounced higher.
This support area needs to hold or a move lower to test the August high is likely. Just below the August high is the diagonal trend line that forms the top of the symmetrical triangle GLD has constructed since March.
MACD remains under a negative crossover, which has widened slightly; however, the histograms are slowly receding - so the signals are mixed. Stochastics are moving higher.
The weight of the evidence slightly favors the bulls. The key is that price holds horizontal support.
The weekly chart has the inverse head & shoulders formation still in play. The series of higher lows following the right shoulder is impressive.
Note that MACD has been trending sideways since April, which is when the right shoulder was formed. There have been a couple of negative crossovers followed by positive crossovers, yet the overall trend for MACD is sideways.
Presently, MACD looks like it is curling over and getting ready to make a negative crossover. The histograms are receding back towards zero, suggesting the same. Stochastics have already made a negative crossover, but they have not yet fallen below the 80 overbought level.
The weekly chart suggests further downside action may be coming. Price is the final arbiter, however, so watch and see if GLD holds support. That is the first objective. If support holds, higher prices will follow.
If support does not hold, then a test of the lower diagonal trend line is likely. This is around 94, which is just above the two higher lows marked on the chart following the right shoulder.
The dollar warrants close attention. If a short covering rally occurs, it could be violent, as there are many players presently short.
If (?) this were to occur it would put a strong head wind in the face of gold; and could precipitate a test of the right shoulder.
Gold stocks, as represented by the GDX, were down slightly for the week, giving back 0.31 (-0.72%) to close at 42.76.
Price has broken below its horizontal trend line connecting back to the June high. What was support has now turned into resistance and the GDX has tested the resistance zone and failed thus far.
Volume increased on the decline. MACD remains under a negative crossover, which is widening. It appears that a test of the August high (yellow band) may be forthcoming.
Up next is the monthly GDX chart. It shows a positive MACD crossover, which is a bullish long term signal. Notice, however, that price is near the same level it was back in 2006.
I have mentioned this before as a sign that overall the gold stocks have been underperforming physical gold; although at certain times they outperform, which is the time to be holding them.
At some point they are going to be excellent performers again - I just don't know when. They are subject to overall stock market risk, which is considerable at this time. Thus I remain cautious.
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Good Luck. Good Trading. Good Health. And that's a Wrap.