Newmont Mining (NEM) looks like it may hold the key as to whether gold and gold miners are going to finally break out to the upside. If we look at the daily chart of NEM, we can see that the 10 day ma has crossed over the 20 day ma and the price has just crossed above the 50 day ma. We saw the same thing happen in January and then February only for NEM to drop further but this move looks different. There has been steady accumulation during this phase and the RSI is at 58 and moving higher. The MACD is moving into positive territory and the stochastics are giving a buy signal in the overbought area. All this points to higher prices for NEM.
If we look at the weekly chart we can see that there is a major hurdle at $42.50 as this is the neckline of the massive head and shoulders pattern that formed since March of 2012. The technical downside if the pattern is completed is about $28. The question now remains as to whether this current move is just a re-test of the neckline and then a final plunge to the $28. area or whether the neckline will be penetrated and NEM will rally to new highs.
The MACD is close to giving a buy signal and the stochastics are already giving a buy signal. The downtrend in the RSI appears to have been broken and NEM has crossed above it’s 10 week ma of $41.49.
Conclusion: While it is impossible to be sure at this stage, the fundamental factors of what is happening in Europe at the present time combined with worldwide QE and positive technical indicators would seem to support the view that a rally in gold and miners is iminent. If NEM breaks above $42.50 and holds then we should expect the precious metals rally that the gold bulls have been anticipating for so long to finally commence. I would expect Gold to hit at least $2,000. per oz on this run up and possibly go higher. It could also happen a lot quicker than the market is anticipating.
It has been a rocky ride for gold and silver owners but the charts are bullish and are pointing to further upside.
After breaking out to the upside of a massive one year consolidation pattern, Gold is now consolidating in an equilateral triangle pattern. This pattern breaks out in the direction of the trend 75% of the time so the odds favor an upside breakout. While anything is possible, the fundamentals would also indicate that gold prices should head higher.
1) Starting January 1, 2013 banks worldwide are going to count gold as an asset at it’s full value. Presently it is counted at 50% of value. I have read that the deadline may be extended but the recognition of gold as a currency is just around the corner.
2) Central banks have been net buyers of gold and China and Turkey are huge buyers of gold.
3) Gold is no longer fluctuating in anti-relationship to the US dollar. It appears to be attempting to find its value in relation to other currencies.
4) There are serious problems in the mideast involving Syria. There is a possibility chemical weapons may be used or just obtained by hostile parties. Such an event would probably push gold through the roof.
5) The price projection for gold if it breaks out to the upside is in the 1840-1860 area. A confirmed break below the uptrend line would be bearish and could cause a 100 point drop although support may be found at the 200 day ma of 1663. The odds favor an upside breakout however.
Just as gold is exhibiting a bullish pattern Silver is also exhibiting a bullish pattern in the form of a cup and a handle. A break through the neckline at 35 has a projected price target of 41.
Conclusion: Gold and Silver are volatile but it looks like owning them will pay off sometime in the near future.
It’s difficult to call tops and bottoms but the price action on AAPL combined with that of other indicators points to the fact that the current correction is in all likelihood over. There is blood in the streets and panic everywhere in the news, a good indication of a botton. While the VIX hasn’t surged as many have expected, this is not the first time this has happened when the markets have bottomed. As a matter of fact, VIX derivatives such as VXX and TVIX have been trending down all through this sell off.
First lets look at the monthly chart of APPL. APPL has pulled back exactly to the uptrend line that has been in effect since February 2010. It has touched this line 5 times. A trend that has been in effect for almost 3 years is extrenely strong and is unlikely to be broken especially considering that APPL is still raking in the dough hand over fist. While there has been some trash talk about AAPL in the news lately, I suspect it is just an attempt to talk the stock down so the big boys can hop in at a better price. The perfect entry point for the stock was reached on Friday at $500 per share but in all likelihood AAPL is going to head back up to re-test the $700. level. AAPL looks like a strong buy at these levels.
If we look at the daily chart of APPL, we can see that it is grossly oversold and has been so for awhile but on Friday it had a hugely bullish candlestick accompanied by gigantic volume. This indicates that while shorts covered new buyers stepped in. Since AAPl constitutes a large segment of the market indices, a stop in the decline of its stock can only be positive for the rest of market.
The USD dollar has been trending upward since September and that has undoubtedly put pressure on the markets. It is now near overbought levels and is also re-testing the neckline of the head and shoulders pattern that broke down in September. There is strong resistance at this level and I suspect the re-test will fail causing the dollar to resume it’s downtrend. This should be positive for both stocks and commodities.
The Dow industrials have pulled back right to the 411 day moving average, the same level where the index reversed direction in June. It is unclear what is special about the 411 day moving average but it does appear to be providing support to the index.
The S&P 500 has pulled back to the primary uptrend line that has been in effect since Jun, 2010. While the index has dropped below this line for short periods of time it has spent most of the time above the trend line. The RSI on this pull back is at the same level as it was on the pullbacks in last May and November.
The monthly VIX has reached the downtrend line that has been in effect since October, 2011 and it should hit resistance at this level.
Conclusion: The technical indicators are pointing to the fact that this correction may very well be over. It could be a choppy ride up as it was in June but APPL looks like a strong buy at these levels. Now is probably a good time to scale into some long positions in anticipation of a holiday rebound.
Note: Another beaten up stock you may wish to take a look at is AMD. It was as high as $8.50 in March but is now trading at $1.83. With any type of market recovery it could probably move to $4.50 which is the first major area of resistance.
The bull market is picking up speed. There are highly bullish chart patterns on various asset classes indicating that this market can move a lot higher. With the Fed and ECB pumping money into the system it should provide plenty of fuel for further market advances.
IWM the small cap index has formed a massive inverse head and shoulders pattern that spans from May 2011 until now. The neckline of the pattern has just been broken to the upside. The projected price target is $116 with the next major resistance on the weekly charts at 98.32.
Gold has formed a large cup since February 2012 and has been on a rip for the last 4 weeks. The projected price target based upon the cup and triangle breakout patterns is roughty $2,000. with the next major resistance on the monthly chart at $1889.30. There’s a good chance gold could go much higher than $2,000. in this leg up.
Gold miners as evidenced by GDX have already broken through the neckline of an inverse head and shoulders pattern. The projected price target is $56. but I expect the index to move much higher.
Oil has been consolidating for 4 weeks just above it’s 50 day ma on the monthly charts and it looks like it is ready for another leg up. A price target of $110-$115 does not seem unreasonable. If Iran is attacked then it could go much higher.
If we take a look at SLB (Schlumberger) we can see that it also has formed an inverse head and shoulders pattern since March and the neckline has just been penetrated to the upside. The target price is $90. which corresponds to monthly resistance at $89.65.
Conclusion: Don’t fight the Fed, the ECB or the trend. The bull is charging so either ride it or get out of the way.
It is said that bond traders are 2 steps ahead of stock traders. If that is true then the technicals of the bond market are pointing to a major rally in stocks.
Technically the 20 year bond as evidenced by TLT looks like it is breaking down and heading towards a sell off.
1) TLT is exhibiting the attributes of a classic double top. At the end of May TLT surged up to 130 on large volume. In July it hit 132 but on much lower volume. Over the last week it tested and held it’s 50 day ma of 127 but on increasing sell volume.
2) There is a bearish MACD divergence as TLT hit a higher high but the MACD hit a lower high. The same holds true for the RSI.
3) The RSI is below 50 and the stochastics are on a sell signal.
4) A drop below 124 will confirm the breakdown as TLT will be heading towards a minimum of 118.
On the weekly charts TLT closed the week of July 27th with an outside bearish candelstick and last week it closed with another bearish candlestick that hit a lower high. There is also a bearish RSI divergence as the RSI hit a lower high as TLT made a higher high.
If money is coming out of bonds it in all likelihood is heading into the stock market.
How can the stock market possibly rally in the face of a slowing worldwide economy? My guess is that the markets will rise in anticipation of worldwide QE provided by the world’s central banks. The stock market looks ahead 6-9 months and by then a ton of monetary liquidity will be pumped into the system.
There is also a lot of negative sentiment out there as many analysts are cautious to bearish on the stock market and commodities. The investing public has been withdrawing capital from their mutual fund accounts and either been putting it in a mattress or fixed income funds. I consider these factors to be contrarian indicators.
Both the Fed and the ECB have made their intentions clear that they are prepared to take action to prop up the U.S. and European economies. What can they do? Buy bonds and print money.
The market technicals seem to be following the gyrations caused by the headline news.
The U.S. dollar has been in a strong uptrend and the Euro has been in a strong downtrend since the beginning of May. It looks like that is about to reverse.
The dollar as evidenced by the chart of UUP has a bearish MACD divergence where the asset made a higher high but the MACD has given a sell signal at a much lower level. The stochastic has a similar bearish divergence and has also given a sell signal. Today UUP gapped down strongly and closed just below it’s 50 day ma. This is the first close below the 50 day ma since April.
The euro on the other hand has a bullish MACD divergence where the asset made a lower low but the MACD has given a buy signal at a higher level. The stochastic has a similar bullish divergence and has also given a buy signal.
Today GLD broke out to the upside of an equilateral triangle and continued the move above it’s 50 day ma. There have been 2 other breakouts above the 50 day ma since June, both of which turned out to be false breakouts. Volume has been steadily increasing for the past 3 days and the breakout was back tested today. The reversal of fortunes on the dollar and Euro should be bullish for gold.
Conslusion: It looks like the risk on trade is back in vogue.
As I mentioned in my entry of June 8th the markets looked prime for a fall. After the Spanish bailout was announced there was a brief rally but the markets then headed lower. Today rumors that the world’s central banks are going to backstop Europe caused the major averages to complete the formation of a bullish inverse head and shoulders pattern on the major indices.
If we use the SPY as an example, the head is at 127.13 and the neckline is at 134.25. A breakthrough of the neckline yields a projected target price of 141.37 which is close to the market top reached on April 2nd. The technical indicators are bullish. The RSI is above 50 and rising, positive momentum is increasing and the stochastic is overbought. The stochastic will stay overbought in rising markets so this rally looks like it is just beginning.
The VIX on the other hand has formed a bearish head and shoulders pattern. The head is at 27.73 and the neckline is at 20.83. A penetration of the neckline yields 13.93, roughly the March 16th low. The RSI is below 50, the stochastic is weak and on a sell signal and the MACD is turning down with increasing negative momentum. There is support at it’s 50 day ma which is where it is resting now and uptrend support at 19. A nice breakdown below both levels would confirm the uptrend in the overall market.
The markets are obviously anticipating a huge coordinated worldwide central bank move regardless of what happens in Greece over the weekend. Even the central bank of Canada checked in on Friday. If things don’t work out as planned however the markets could take a nosedive. Therefore we are either looking at S&P 1400 or S&P 1200 in the near future.
Gold has been acting bullishly ever since it bottomed in May. GLD is at the crossroad of the downtrend from the March major top and the intermediate minor tops. There has been talk that collateral for bailout funds for European banks will at least be partially backed by gold. If true this is an admission by central bankers that gold is a valuable asset such as real estate and this action can only be bullish for gold. If GLD can break through the current down trend resistance it should make a run to at least 174.
Conclusion: Right now is a dangerous time for both bulls and bears. If the central banks come through with their plans to prop up the European banks with liquidity the bull market should resume. If they fail to act then my original projection of S&P 1200 looks like it will be in the cards.
I seriously doubt that central banks and the Fed will allow the world financial system to fall apart so consequently they will do whatever is necessary to prop it up. My impression is that the market wants to rally and the correction may be over. All we need is some good news out of Europe and another round of QE3 to get the markets moving in the right direction.
The short covering rally this week basically defined the upper levels of the downtrend channels that the major averages are locked into. Aside from a technical bounce off the SPY 200 day ma at 1278 that coincides with the bottom of the channel, there was the hope that either the Fed or the ECB would come to the rescue of the markets with more quantitative easing. Since neither event happened we are now back to the possibility of a financial meltdown in Europe, a severe slowdown in China and a recession in the U.S. Bear market rallies are based on the slope of hope whereas bull markets climb a wall of worry.
The S&P hit the upper descending trend line of it’s downtrend channel yesterday and then again today. This area coincides with the neckline of the head and shoulders top and is an area of both strong horizontal and downtrend resistance. The stochastic is almost in overbought territory and the RSI is right at the midline where it would be expected to turn down in a continued downtrend.
and DIA are exhibiting almost the exact same chart formations.
Another technical indicator that we should look at is the ATR or average true range, a measure of volatility. If we look at the weekly chart of the S&P 500 we can see that the ATR declines on uptrends and forms rounded bottoms at market tops. It then moves up significantly on market declines as happened in 2010 and 2011. Right now the ATR is forming a rounded bottom and starting to curve up.
This is even more pronounced on the daily chart as the ATR is still rising even though the market is rallying. While past performance is no guarantee of future performance, the implication of this chart is that the current rally is merely a counter trend bounce and the market has not seen the final panic dump that signifies a true bottom.
If the ATR starts to decline while the market continues to rise past the head & shoulders neckline and on strong volume then that would be confirmation of a bullish trend reversal. Right now that prospect does not appear to be in the cards.
The market also rallied between May 21 and May 29 but the ATR dipped slightly and then kept rising. The rally ultimately culminated in a sell off. We appear to be in the same situation but the potential decline from this point on could be much greater.
Technical indicators are for the most part bearish. While the S&P has moved back above it’s 200 day moving average, the 50 day ma is curving downward and would act as major resistance assuming the index can even get that far. The MACD is underwater and while it has given a buy signal positive momentum appears weak and volatility is increasing. Volume on down days is for the most part greater than volume on up days.
Conclusion: Fast, sharp rallies such as we have seen this week are typical of bear market rallies. While it is unclear if we are in a bear market we are at least in a sustained downtrend. China is going to announce economic numbers on Saturday and Spain is going to ask the eurozone for help over the weekend. The Spanish banks have been rallying this week as evidenced by the etf EWP. This implies that a bailout of their banks has in all likelihood already been priced into the market. China’s economic numbers are allegedly going to come in weak. Therefore we may very well be in a ‘sell on the news’ environment regardless of what that news is.
While the market has been trending up for the past week, the pattern that is forming on the major indices appears to be that of a bear flag. To be exact these look more like bear pennants as they are triangulated. Triangles sometimes can be reversal patterns however, so until there is a breakout in either direction caution is the word.
As can be seen by the monthly chart of the SPY, the market has been finding support and resistance at it’s 20 and 50 day EMA’s. Any rally on the S&P will probably not make it past 1341 as that is also the neckline of the head and shoulders pattern. If the market breaks down further, there is a good chance that it will not bottom until it hits it’s 200 day EMA at 1181. In the declines that occured in 2010 and 2011, the market actually dropped slightly below it’s 200 day EMA before recovering.
Gold miners as evidenced by GDX look like they have finally bottomed and there are indications that they have reversed trend and are now heading up. The downtrend from the March top has been solidly broken and buy volume has been extremely strong off the May bottom.
Gold itself does not look too good however. While the double bottom from the December low has been tested twice, GLD is now hitting short term downtrend resistance from it’s May top. If it can manage to get past that line there are 2 more downtrend resistance lines that it must also get through before real progress can be made in the index. If the double bottom does not hold, with the dollar rising and banks dumping hard assets to raise cash, gold can head a lot lower.
The Euro has just broken through the neckline of a head and shoulders pattern that has been forming since September, 2010. With the neckline at 126 and the head at 148 the projected price target is 1.04. With capital fleeing the Eurozone, it appears that the only thing that will at least temporarily reverse a Euro decline is a short covering rally.
Conclusion: With chunks of Europe in a recession and captial fleeing the Eurozone, there’s an excellent chance the U.S. stock market will be dragged down until there are some signs of stability coming out of Europe. Of course another dose of QE will give the markets a lift and take the funk out of gold. Since we are in an election year, in all probability we will see more QE if the market drops too low.
The stock market has been dropping in a slow, agonizing fashion for the last 2 weeks although today it picked up a little speed. The SPY stopped it’s slide today right at it’s 200 day EMA of 1307. If the market doesn’t find some support at this level, the next level of support is 1260 which would fulfill the head and shoulders break down.
With the Facebook IPO coming up tomorrow, if some real bad news doesn’t hit the wire we will probably get a bounce off current levels. With on-going problems in Europe still unresolved and the doo at JP Morgan still hitting the fan, any bounce should be sold into as it will in all likehood be a dead cat bounce.
Yesterday GLD came within .33 of the December, 2011 low of 148.27 and today it rallied off a double bottom. The question is whether this is the start of a new leg up or if GLD will continue it’s march downward. There’s a good chance GLD will make a run to the top of it’s downtrend channel which right now sits at 158. We won’t know what the prognosis will be until it gets there as the downtrend must be broken before we can assume another leg up has started.
Conclusion: The S&P 500 looks like it may have hit a temporary level of support. The initial target of this correction is 1260 so even if we get a bounce from here the market will probably be headed lower.