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Today's Market WrapUp 12.20.2007 Mon Tue Wed Thu Fri Goldberg Archive Quick
Technical Take on Gold
In spite of the rally in the US dollar, gold has been holding on to most of its gains since July. In fact so far, less than 38% of these gains have been retraced since early November. Gold has also held on to its 10-week moving average where it found support at about $800/ounce. The weekly chart doesn’t suggest in any way that the bull market in gold is over. A four month advance has given way to a 2 month correction (so far). The beginning of a new uptrend over the next couple of weeks would render the correction fairly benign in both magnitude and duration, and this would say something importantly bullish about the strength of the long term gold market.
The real strength of gold is not that which is occurring against the weakness of the dollar; but the strength that is occurring against both other major currencies as well as the US dollar. Of technical importance is the not-yet-completed cup-with-handle pattern that is forming in the ratio of gold to Euro Index. This chart should be carefully watched and considered, especially if the ratio breaks out into new high ground.
The Japanese yen is in practically the same technical predicament as the Euro which is a bullish cup-with-handle waiting for a breakout to the upside.
In summary, the technical correction of gold priced in dollars has been mild in both magnitude and duration (assuming that it is almost over). The chart of gold in terms of euros and yen is bullish and will be even more-so if a breakout to new highs is reached. The overall long term picture is bullish for gold in all three currency fronts. If this is the case, what does it say about what is going on with paper money? World wide inflation. Gold Bugs Index The situation with the gold bugs index is one of a long term bull market that is now at a critical technical level. Below is the long term roadmap in Elliott wave terms. If gold stocks are in a long term bull market, they may have begun wave 3 of Wave III - the third of a third wave. Within that wave 3, a shorter term 5 wave pattern is developing where perhaps wave i has been completed (shown). If that is the case, then the correction of wave i would be expected to find support near the former resistance line shown by the purple line in the chart below. This former resistance level is also close to the 40-week moving average, which also may be an important technical support level. Failure of the former resistance line to act as support would put this analysis back to the drawing board. Then a continuation of the wave 2 correction would appear to be the most likely technical position of the HUI. However, it is important to note that the wave 2 correction has been minor in the context of the long term bullish technical picture for gold stocks. Additionally, the relatively long duration of the wave 2 correction appears to have been the effective method of shaking out impatient traders from the market. Of course a steeper downward thrust, if it occurred soon, would also serve to get many additional gold bulls to throw in the towel. “First, make them wait, and then punch them in the nose”!
Below you see the intermediate term picture of the proposed wave i up and the proposed wave ii correction which began in early November and is still in progress. Note the important intermediate term technical level defined by the thick purple line and the 40 week moving average.
Today’s Market The market finished marginally up, carried mostly by large cap Nasdaq stocks which were happy about business being good at Oracle. Important to the long term technical picture of the market is the progressively narrow US stock market. While all indications are that the large cap tech stock market is in a bull market, the market for microcap stocks has been in a persistent bear for the last year or so. The one year chart – showing the Nasdaq 100, the S&P 500 and Russell Microcap Index ETF - is worth a thousand words.
Have a happy holiday season and a healthy and prosperous New Year. Martin Goldberg Copyright © 2007 All rights reserved. CONTACT
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