Posts Tagged ‘abx’
While technical analysis and chart patterns can give one an edge in the stock market, they are not perfect. Both Barrick and Randgold were looking extremely bullish on the charts and then both stocks broke down. That is why it is critical to set your stop loss at the time of the purchase.
Randgold broke down from a flag pattern and it’s chart now looks bearish as there is a head and shoulders pattern forming on it. GOLD appears to be heading towards the neckline at 70. A break below the neckline has a target of 35 but a reversal back up from it would be bullish. A trade either way is developing but I would wait for the stock to show it’s hand before jumping in.
Barrick broke down from it’s long term uptrend line and it’s chart now also looks bearish. It looks like it could be heading towards it’s 200 day EMA at 39.21.
The breakdown of gold miners indicates that the market believes the rising price of oil is a greater negative to gold miner’s profits than the increasing price of gold is a positive.
I have dissected the above chart of the SPY into various channels. Since the March 2009 bottom, the S&P has been rising in an ascending wedge pattern denoted by lines A and C. Right now the index is getting squeezed near the apex. While this pattern is normally bearish, a breakdown near the apex implies a small move. Therefore I would not put too much credence into this pattern.
Lines A & B form a parallel uptrend channel that the S&P has traded within since November 2008 except for 2 months between February and April 2009 when it dropped to the lower channel denoted by lines B & D.
The MACD at the bottom of the chart has been in an uptrend since November 2008 and it is now touching the uptrend line. The MACD is well above 0 and in order for it to continue rising along the uptrend line the market would need a strong surge.
The RSI at the top of the chart is at levels where it moved higher along with the market since November 2010.
The S&P has been rallying along it’s 10 day EMA since September 2010 and is sitting right at it now. It has also flagged down to it.
All the moving averages are in positive territory as the 10 day is above the 20 day, the 20 is above the 50 and the 50 is above the 200.
Conclusion: Overall the chart of the S&P looks bullish but there are 2 problematic features to it: 1) The MACD is touching it’s long term uptrend line at a high level. It would take great market strength for it to push higher from this point. 2) The S&P is coasting along the top of it’s uptrend channel. While it could ride the upper trend line, at some point it would either have to break through to the next trend channel or head lower.
If the MACD breaks below it’s uptrend line then it would probably head to the 0 point. The last time it did that was in July-August 2010 when the S&P hit the bottom of the uptrend channel twice during that period. The bottom of the uptrend channel currently sits at about 1175 so a similar move in the MACD would in all likelihood take us down to that level.
The 1200-1250 area is a strong area of support. The next major level of support is at 1150 which is below the lower uptrend line. A strong break below line B would indicate that we are heading into a bear market phase with a target of line D that is about 975.
Bear markets generally happen when everything is rosey and then some thorns appear. That is not the case today as there are more thorns than roses, so I do not believe we are heading into a bear market. We may however be setting up for a steeper correction. A correction could also consist of sideways trading where the market is range bound for a few months before it heads higher.
There is some uncertainty in the market as QE2 is ending in June. Based upon current economic data, my impression is that the U.S. economy is still not self-sustainable. This leads me to believe that Ben Bernanke will institute some form of QE3 in order to prop things up.