Week Ending 5/14/10
The following excerpt is from the full Gold & Silver Market Wrap Report delivered to our subscribers on 5/15/10, accessible at the Honest Money Gold & Silver Report website.
Gold put it an all-time weekly closing high of $1232.60 (continuous contract) for a gain of $24.10 (+1.99%). On Wed. gold made a closing high of $1239.10, and on Friday it made an intra-day high of $1249.30. As you can see - gold has been busy.
None of this comes as a surprise to regular readers, as back in April-May of 2009, when gold was in the process of constructing the right shoulder of its weekly inverse head & shoulder formation, we stated that the formation had a potential price target of $1300.00.
Several times since then, we have been so confident on gold that money back guarantees on new subscriptions were offered if new highs were not made. New highs have come to pass.
The daily chart below also has an inverse head & shoulder formation that has been confirmed (the weekly chart's is much larger).
Together, the fact that this powerful formation appears on both charts is a testament to just how strong the gold bull market is.
It's the only secular bull market in town. The only downside is that the latest move is parabolic.
The weekly chart shows both inverse head & shoulder formations. Notice the first formation is over 18 months in duration, while the second and smaller pattern is about 6 months old.
All the indicators on the chart are strong, although a couple of "questions" are starting to appear. RSI is just hitting overbought territory. This is good in the sense it has room to expand before becoming too overextended.
However, notice that RSI was much higher during the Dec. 2009 high, which creates a bit of a negative divergence. The same holds true for MACD.
The gold stocks (GDX) had a big week, advancing 8% to close at 53.15, back above their Jan. high and closing in on the Dec. 2009 high. The index hit its closing high on Tuesday (53.60).
In last week's report the model portfolio stayed with the recent 10% increase allocation in gold stocks. As regular readers know, we have been fortunate to have moved in and out of this position a few times since the rally began.
It paid off to have stayed in, even when last week it looked like the gold stocks were losing momentum.
Per the email alert sent out on Tuesday (5/11), however, we took some money off the table and booked recent trading profits (SWC, GOLD, NEM, DGP).
New positions may be entered in again soon - or not. It depends on what next week brings to the table. This regards the trading portion of the portfolio. A core position is still maintained.
As stated last week, and as will be shown in the precious metals point & figure charts in the stock watch list, many of the pm stocks recently traded have outperformed the GDX.
At the bottom of the chart you can see the GDX outperforming the SPX, which suggests that the pm stocks may be uncoupling from the overall stock market. It is still too early to tell for sure.
RSI is in overbought territory, which shows strength - as long as it remains there. Once it overstays its welcome, a correction will unfold.
Notice the last move in price: its trend line is parabolic and will be hard to sustain.
The GDX's point & figure chart shows a price projection of 55 - two points above its present price. This suggests the upside may be limited short term.
Silver was the outstanding performer in the pm sector last week, gaining over 5% to close at $19.31.
This was an important milestone, as not only was it a new high for 2010, but it also bettered the Dec. 2009 high. Now silver needs to break above its 2008 high of 21.44.
Last week's report mentioned that silver was "wedged" between overhead resistance and lower trend line support; and that it wouldn't take much to move silver either way: up or down. The silver gods decided to move it higher.
The weekly SLV chart shows silver's breakout. RSI is moving up and has room to expand before becoming overbought. Volume expanded on the move.
Chaiken Money Flows (CMF) is still a concern, as they are shrinking, as opposed to expanding. This is not conducive to a sustainable rally.
Last week a positive MACD crossover was lacking - this week one was made: a constructive development.
Money flows (CMF) have expanded, but they still need to expand further. Silver's fate still lies with gold's - as goes gold, so too will silver.
The above excerpt is from this week's full market wrap report available at the Honest Money Gold & Silver Report website. A FREE one-month trial subscription is available. Our stock watch list has picked some big winners of late; AND profits were booked several times. We invite you to stop by and check it out.
Good Luck. Good Trading. Good Health. And that's a Wrap.