Week Ending 2/26/10
The following excerpt is from the latest full-length market wrap report, available only at the Honest Money Gold & Silver Report website. All major markets are covered: stocks, bonds, currencies, and commodities, with the emphasis on the precious metals.
New home sales fell 7.6% in Dec., which equates to an annual sales rate of 342,000 units. This was the lowest number ever reported. Supply on the market rose to 8.1 months. Sales are down a large 22.9% for the year (see chart below).
Sales of previously owned homes declined 7.2% in January, which was a seven-month low. This works out to an annual rate of 5.05 million units - the second largest decline on record.
It will be tough for a sustainable recovery to last with numbers like these, especially considering that the unemployment rate remains so high. Capacity utilization is trying to carve out a bottom.
Further evidence of weak underlying economic currents is the chart of bank credit (below), which is contracting significantly. The Fed has put liquidity into the system, but the banks are not loaning it out.
As I have said repeatedly for months - the dollar is calling the shots for stocks, commodities, and the precious metals. Due to Greece's debt debacle the euro has come under intense selling pressure, which put a strong bid under the dollar.
On Friday the euro gained versus the dollar due to reports that German officials are considering buying Greek bonds through state-owned lender KfW Group.
Initial reports say that Greece may receive up to 25 billion euros ($34 billion) in aid. We'll see how this develops and plays out and whether the market likes what it hears or not.
As the dollar chart below shows, momentum is waning. MACD has put in a negative crossover and the histograms have turned negative as well. RSI has turned down.
Notice how long MACD has been essentially moving sideways: the dollar has been overbought, but has remained so because of the euro's weakness. If the euro rallies, the dollar will fall. If this occurs, it will put a bid under stocks, commodities, and especially the precious metals.
Next up is the daily euro chart. On Friday the euro finally rallied, with MACD making a positive crossover. The histograms have moved into positive territory and RSI is headed up.
It remains to be seen if this is more than a dead cat bounce. A lot will depend on any news out of the EU regarding Greece; and how the markets respond to the news.
Overhead resistance is indicated on the chart by the 38% Fibonacci retracement level. If the euro continues to rally, it will be supportive of gold and the other commodities.
With the recent dollar weakness, commodities also had a bid put under them, as the chart of DBC shows. Friday's candlestick was a bullish white Marubozu, where the open was the low of the day and the close was the high for the day: meaning the bulls controlled the ball all day - from open to close. A possible 13/34 crossover may be setting up; it will depend on the dollar and the euro.
Gold has been holding up quite well, considering the strength of the dollar, and the weakness in the euro, as the chart below shows. Notice that the euro has fallen below last summer's low, while gold has remained well above the Nov. low, and is presently putting in the highest reaction low since making its all-time high.
The daily chart (below) shows gold breaking out above its falling wedge formation and then reversing and testing the breakout level, which so far has held. Now gold is moving back up, testing overhead resistance.
A break above resistance near 111 could lead to a run at Jan.'s high at the top of wave "B", and perhaps a challenge of the all-time high at the top of wave "A".
STO had been in overbought territory above 80, and it then fell below 80, indicating that a correction was unfolding. However, with the end of the week rally, STO has turned back up, hinting that the move up may have legs.
Notice, however, that it will not take much to put gold back above 80 (STO) and into overbought territory again.
This potential set-up has important implications if it plays out. The full market wrap report covers this possible scenario in detail, as well as several others.
In today's turbulent times of financial crisis gold and silver are more important than ever. The precious metals and other markets are at crucial inflection points. Which way the dollar and the euro go will have a major impact on all markets.
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Good Luck. Good Trading. Good Health. And that's a Wrap.