The Dollar
The dollar failed to gain any ground after the long October slide. On one hand we now have taxi drivers and housewives that are bearish of the dollar (a positive sign for the buck), on the other we have central banks still loaded with trillions of dollars. The battle story shall be told in the charts which we will monitor carefully. We feel 85 will act as a tough resistance to overcome this year. The next level of support is in the 81-2 area established in 1992.
Swiss Francs:
Sfrancs continued its uptrend. The commercials have not reduced their net short position of 50,000 contracts. SFrancs is currently nearly 10% above the 200 DMA. Both paint a bearish picture for Sfrancs and could mean dollar's downside from here is limited in the short term. We would set very tight stop on the SFrancs if we are long.
US Bonds:
US long bonds rebounded last week. It does look like a top is in place. For the bears, be cautious as it is comfortably above the 200 DMA. We are neutral on bonds.
Gold
The bull won the coin toss last week. Third time is the charm as gold successfully broke through the $435 resistance. Looking back we think $435 will mark a significant turning point, not unlike the previous $325 and $375 resistance levels. If gold can stay above $435 this week, it should challenge $480 by year end.
Silver
Silver bulls must be happy with silver's action last week. Our take is $6.5-$7 area marks strong support. If gold continues its uptrend this week, we could see silver come near year-high of $8.7. A break below $6.6 means something is wrong in the silver bull market. An eventual breakout of $8.5 would send silver price multiple times today's level. Silver is clearly following gold (healthy investment demand) while the physical market is backed by healthy industrial demand. It's the metal with an explosive upside.
Palladium
Palladium is looking to challenge 200 DMA of $237 this week. Next resistance levels after that are $250 and $325. It's the least risky metal investment in our opinion at this juncture.
Gold stocks
XAU is still in the trading range and has not followed the breakout in gold. The key is the dollar and the high Sfrancs commercial short position could be worrisome for those who long XAU.
US market
S&P 500 gained slightly last week. The big players have not been allowed to make any meaningful distribution all year in 2004. In my view US market is in danger of a prolonged decline throughout 2005. Commercials are still net long 4,000 S&P 500 contracts. Final blow-off is in process that could last till January of 2005. Timing is not favorable for a short trade - yet.
Nikkei
The view from last week has not changed. At this rate, Nikkei is poised for a breakout by Feb 2005. I favor the upside due to a rising yen and the speculative capital it will bring to Japan. For those investing for the long run EWJ presents a good entry point here. Traders might wait a bit longer for the definitive breakout to enter.
The gold chart tells us $480 is in sight this year after the gold price exceeded its 16-year-high last week. However the breakout of gold has not been confirmed by the XAU. With SFrancs high above 200 DMA (while loaded with commercial shorts) and the dollar index trading just two percent from all time low, the current situation presents a mixed picture for gold investors. For gold to challenge $480 this year, it might have to decouple from the dollar and the Sfrancs. XAU should exceed 110 this week to confirm gold's breakout. US equity and bond market look toppy and should be avoided.
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