The following excerpts are from various Gold & Silver Market Wrap Reports, from May of 2009, up to the present. Each excerpt is dated according to the weekly market wrap it appeared in. The reader is invited to trace the progression of gold's inverse head & shoulders formation, first reported in April of 2009, to its subsequent breakout and confirmation in Oct. 2009, followed by its new all-time high, which was targeted in May, and the subsequent warning that such parabolic action suggested a correction would soon be coming.
Many of the stocks in our stock watch list profited significantly on gold's breakout. The correction ensued and the rest is history. Positions were then taken in several gold mining stocks that provided gains that were booked within two weeks time. Now, another phase appears to be unfolding, and new positions have been taken accordingly.
If the following information appeals to the reader's investment objectives and goals, we invite you to try a three month trial subscription that includes a money backed guarantee (see details at the end of this report).
Despite short term weakness on the daily chart, the weekly chart still shows a possible inverse head & shoulders formation, with the right shoulder presently under construction. This formation has been noted in the report now for weeks.
Notice that price could still drop further and not violate the present formation. This does not mean the formation is guaranteed, as until a breakout above the neckline occurs on expanding volume, it is all merely potential not actual.
Nevertheless, the potential does remain, now it remains to be seen if it obtains. Possible upside targets are around 130 if a breakout occurs and holds.
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 divergences exist, 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.
The weekly chart shows the inverse head & shoulders formation finally confirmed with last week's breakout. All the indicators are in positive territory.
Broken resistance now turns into support. Once support is tested, and holds, the next phase in the gold bull will be off and running. The upside target potential is 1300 (1000-700=300, 1000+300=1300).
The weekly chart shows gold rising from the lower left hand corner of the chart to the upper right hand corner - a bullish signature. There is upside potential to $1300 according to the inverse head and shoulders breakout (1000-700=300- 1000+300=1300) that was discussed in this report several months ago, as well as every week since.
However, gold has come a long way without an intermediate term correction. It may well keep on carrying on; or it may pull-back from overbought readings.
While 1300 is still a viable target - 1000 may be tested first. Such a move would shake out a lot of the momentum players that have recently hitched a late ride on a fast moving train, as is their want - not ours.
The monthly chart shows gold going pretty near parabolic. Without a consolidation/correction, such a move is usually unsustainable.
Markets go up. Markets go down. It's a question of when, not if. If gold does correct, the naysayers and bears will come out screaming, which is just what the doctor ordered. As long as support holds, such a pull-back would offer a sweet entry point, with a better risk to reward ratio than presently is the case.
Gold fell 45.20 to close at 1162.40, for a weekly loss of -3.74%. Going into Friday, gold was up for the week. Friday's action took all the gains away and then some. Gold has gone parabolic in the last few weeks, and a correction/consolidation was mentioned in last week's report, as being constructive for the long term viability of the gold bull.
So far, the pullback has been minimal. GLD is testing its 20 dma, and just below that the 50 dma resides. MACD remains positive, but it is curling over and looks about ready to make a negative crossover. Notice the big expansion in volume on Friday's move down. The various support zones are indicated on the chart.
Up next is the daily gold chart going back to the beginning of the year. Note the steepness of the ascent from 1075 and up: a parabolic rise with little intervening support.
Gold's 50 dma is fast approaching. If it is broken below, the next level of support is marked by the yellow horizontal band around 1050-1075. Significant support is further below near 1000.
RSI has broken below the 50 level. Note that CCI has given pretty good sell signals when it moved from overbought (+200) to below 100, which is why we have been closely watching it the last few weeks.
Since Dec. 2008, gold has gained approximately $400 dollars or 50% (800+400=1200). It is not unusual for an asset to correct a third to one half of its gain: 400/2=200 - 1200-200=1000.
Last week the GDX was only down about .25%, although on Friday of that week (12/4/09) it gaped down about 5%. GDX continued its decline this week, losing another 5.66%.
Since its closing high of 54.78 on Dec. 2, the GDX has lost about 12%. Price is presently testing support. If the gold stocks don't hold here, the next target is the lower diagonal trend line near 46.
Once again, the CCI index gave a good sell signal, as mentioned in last week's report: (following is from last week's report 12/4):
The CCI index at the top of chart plunged from overbought down into negative territory. Notice the dotted vertical lines that connect all other similar moves by CCI with the ROC readings at the bottom of the chart. Each of these set-ups was followed by corrections.
MACD (not shown) has made a negative crossover, but RSI is holding just above the 50 level (51). Chaikin Money Flows are quickly retreating towards zero.
The stock market was up for the week, and this may have provided support for the gold stocks. If the dollar rally continues, both the market and gold stocks will have a strong headwind to contend with.
The indicators and the gap down on expanding volume suggest more downside is likely, but price is the final arbiter, and as of now, support is holding. If support doesn't hold, the next target would be the lower yellow zone.
[Chart from last week's report 12/4]
Gold lost $15.90 to close at $1065.60, for a weekly loss of -1.47% (continuous contract). The daily GLD chart shows an A-B-C correction underway. Price is presently testing horizontal support that goes back to Oct. - Nov. If support doesn't hold, the next line of defense is the yellow horizontal support band at 100, which goes back to Sept.
Downside momentum is waning and RSI and the histograms are showing slight positive divergences. Friday's candlestick was a hammer, which suggests that downside momentum is turning and that a short term reversal may be at hand. The open gap above looks inviting.
As opposed to the dollar, gold is one of the smallest markets in the world; however, gold is still a liquid market. It can be bought and sold at any time. The fact that it is a small market means that it can be easily moved by hot money flows. Sometime in the not too distant future, this will be very advantageous for gold's price.
There were several other charts in this week's report that contained bullish engulfing candlesticks and or reversal formations; albeit for the short term.
If an oversold bounce does occur, even for a couple of days, the following charts look poised and ready to profit thereby. Remember - the operative word is if.
Newmont Mining looks good for a few reasons, however, if the overall stock market doesn't rally, Newmont will most likely stall as well. Notice on the chart that NEM has held above the Oct. & Nov. lows. It has made a higher low. Very few of the gold stocks are in this position. Most have broken well below their autumn lows.
RSI shows a positive crossover. Once again, few, if any gold stocks have positive crossovers; although there are several that have positive set-ups. Lastly, look at the huge volume spike on Friday's bullish engulfing candlestick. That was some serious buying taking place and it will need to be digested.
The last stock we are going to mention from this week's stock watch list is I Am Gold (IAG). It has been in and out of the watch list many times over the course of the bull market.
On the chart below notice the series of higher reaction lows. The most recent Feb. low did NOT break below the Oct. - Nov. lows. Aside from Newmont, mentioned earlier, there are few gold stocks that have NOT broken below their autumn lows. This shows relative strength versus the overall sector.
Friday's engulfing candlestick coupled with the surge in volume looks promising; however, it needs to be confirmed. If the overall stock market continues to correct, it will put a head wind to even the strongest gold stocks.
IAG has constructed an A-B-C correction that may have put in a double bottom. We should know this week. Notice that RSI has made a positive divergence: it made a higher low, while price made a lower low.
Confirmation with a positive MACD crossover is needed. As of now I look at this as a trading possibility - if it confirms. If it does, then we re-evaluate the landscape to see if it has legs or not - taking one step at a time.
In last week's report I said:
On Friday the gold stocks were hit pretty hard in the morning, but they came back to recoup most of their losses. Some actually closed up on the day. Considering the amount of bad news, I thought the action was encouraging, hinting at a short term rally.
The daily chart shows support at 40 holding, with resistance above around 45-46. MACD has made a positive crossover and the histograms have turned positive as well. CCI has moved from oversold to positive territory, suggesting further upside is likely.
The gold stocks did rally, up 1.43% for the week, with the GDX index closing at 44.57. Several of the stocks on the stock watch list had substantial gains over the last two weeks, so I sold most of my new positions on Thursday, as noted in the email alert sent out that day (IAG 9.8%, NEM 5.5%, GOLD 6.7%, and APC 6.4%).
Since taking profits on the above-mentioned gold stocks, market conditions have changed. It looks like the overbought dollar is finally correcting, while the oversold euro is attempting a short-covering rally. In Monday night's email alert (3/1/10), subscribers were updated to such possibilities; and that I had taken new positions in GOLD and SWC, and that things needed to be monitored closely, as emotion were running high.
Needless to say, the report has covered gold fairly well over the past year, and I am confident it will going forward. How confident am I? Confident enough to offer a full, money backed guarantee, on all three month trial subscriptions, initiated by March 21, 2010: if gold does not reach a new yearly high by the end of April, your subscription price ($69) will be refunded in full, and the free book and other materials are yours to keep without obligation.
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Good Luck. Good Trading. Good Health. And that's a Wrap.