Week Ending 4/09/10
Gold had a strong week, adding $34.80, to close at $1161.60 (continuous contract), for a weekly gain of 3%. Gold made a new closing high for the year (2010), and is approximately 4.47% from its Dec. 2009 all-time high.
As the chart below shows, gold has now bettered its Mar. & Jan. series of lower highs, and only has to break above its all-time high of Dec. 2009. Then the next leg up in the bull market will commence with a series of higher highs and higher lows.
Gold's daily chart is bullish, but it is also starting to enter overbought territory. Gold has been performing well despite a steady dollar. If the dollar were to correct, it would put a stronger bid under gold.
The weekly chart is looking up as well, although a positive MACD crossover has not yet occurred, and is necessary, if a sustainable rally is to unfold. All other indicators are pointing up.
Last week's report stated that gold's "price has broken out of its falling flag formation AND above its falling trend line extending down from its Dec. high. The chart has turned decidedly bullish if price holds the breakout."
So far, price not only held the breakout, but added $34.80 to it. This is additional bullish confirmation. I also stated last week that there was further potential in an inverse head & shoulders pattern that was forming.
As the chart below shows, the breakout occurred and on expanding volume, although volume could have been stronger. Subscribers were alerted to the breakout via an intra-day email update within hours of it occurring.
The final confirmation will be if broken resistance now turns into and holds as support.
Often times, after a breakout, price will come back to test the breakout level. This does not have to occur, as price may keep on advancing. Such a retest, however, if it holds, adds final confirmation that the breakout is valid and sustainable.
Gold stocks, as represented by the GDX, had a good week, adding almost 5%, closing at 48.68. In last week's report I stated that it was make it or break it time for the GDX.
The index had broken above its descending trend line from the Jan. & Mar. highs. MACD had just barely made a positive crossover, and with overhead resistance directly above at the March high, it truly was "make it or break it time."
Either the index would power up through resistance or get turned back. The GDX responded by shooting up almost 5% on expanding volume. The positive MACD crossover increased and the histograms turned up into positive territory as well.
It was good action all around. The only detractions are the overbought CCI readings, and Friday's long legged doji-candlestick, which shows indecision.
Price closed almost exactly at its open, yet intra-day price moved significantly higher AND lower, ending at a standstill. Neither the bears nor the bulls made any headway; hence the indecision of the candlestick.
It will be important to watch the CCI index at the top of the chart: any drop below 100 would raise a caution flag. Often times on breakouts, price retests the breakout level.
The most significant risk to the pm stocks is overall stock market risk, as the market is overbought and has been so for some time. Now, many of the gold stocks are becoming overbought as well, and attention is warranted.
Platinum continues to make new yearly highs and added $52.40 (3%) to close at $1722.20. CCI shows platinum is in overbought territory and the 100 level should be monitored closely. A break below would be a warning flag of a possible correction.
SWC (Stillwater Mining) continues to perform excellently, following platinum's lead; and is up 36% since its addition to the stock watch list in Feb. It is overbought as well.
The above excerpt is from this week's full market wrap report available at the Honest Money Gold & Silver Market Wrap Report website. A FREE one-month trial subscription is available. Stop by and check it out.
All major markets are covered: stocks, bonds, currencies, and commodities, with the emphasis on the precious metals. Our stock watch list provides numerous investment ideas each week and the model portfolio offers a game plan to implement them.
Good Luck. Good Trading. Good Health. And that's a Wrap.