Posts Tagged ‘Gold’
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.
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.
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 U.S. stock market is breaking down below critical support levels at the same time the VIX is starting to surge. As I mentioned in my entry of May 13, there was an inverse head and shoulders pattern on the VIX with the neckline at 21.64. The VIX has now closed above the neckline for 2 days in a row and the S&P 500 has closed below 1340 for 2 days in row. This is a strong indication that the market is heading lower. So far panic selling has not set in but the surge in the VIX indicates that it is probably just around the corner.
The S&P has a quasi head and shoulders pattern on it with a projected downside target of 1260.
In the late afternoon word came down that a run on Greek banks is underway. While the ECB claims there is a firewall around Greek banks, viruses have a nasty way of penetrating firewalls. At this point in time it is unclear as to which banks are exposed to European debt and how far things could spread. We know that MF Global made some bad bets on Europe and now JP Morgan is being investigated for trading losses. While we don’t know exactly what led to JPM’s trading losses, there’s a good chance it involved European debt.
It also looks like the really bad news may just be starting. Greece could not form a government and will require a new election in June. A run on Spanish and Italian banks could start at anytime if the citizens of those countries start to panic because of what is happening in Greece.
The U.S. Dollar has been on a rip and has broken through both short and longer term downtrend resistance. While there are horizontal resistance points at 82, 83 and 86, the multi-year downtrend resistance stands at just under 88. If the dollar were to surge that high the S&P would probably drop to about 1000. The question is will Ben Bernanke allow that to happen.
Since this is an election year the incumbents will probably do everything in their power to prop up the markets. It’s unclear at what point the Fed will step in with further easing but I doubt they will allow the markets to drop that far before the election.
Gold as evidenced by the chart of GLD may be approaching a double bottom. GLD is almost at the December, 2011 low and I would think that traders are waiting for it to get there before hopping in. While there will probably be some sort of bounce off that level, it is unclear if it will just be a blip in a larger downtrend of if a new rally will start.
Oil as evidenced by the chart of WTIC may also be approaching a double bottom. Oil broke down from a rising head and shoulders pattern and the pattern looks like it is near completion. An interesting scenario would be if the Fed announces a new round of QE just as the S&P, Gold and Oil hit their projected downside targets.
Conclusion: It looks like the stock market is heading lower. At some point the Fed and ECB will probably step in with further QE.
As can be seen on the weekly chart of Gold, Gold has pulled back to the uptrend line of the massive consolidation pattern that it has been in since July, 2011. Gold will either rally from this point or sell off further and possibly head a lot lower. The technical indicators point to a rally of some sort. Gold could rally to the the top of the pattern at about $1,700. and still remain within this consolidation pattern.
The stochastic on this chart is extremely oversold and is the most oversold it has been since 2010. Each time the stochastic hit this level of oversold a substantial rally has ensued. The RSI is at the level it was in January, 2012 when Gold staged a nice rally to the top of the consolidation pattern
If we look at the daily chart of Gold, we can see that it is culminating in a descending wedge pattern. Typically these patterns break out to the upside. The RSI is extremely oversold and is at the level it was in Janury, 2012 when a rally ensued. The stochastic is also at the level it was at other times subsequent to that when some type of uptrend ensued.
Sentiment on Gold is extremely bearish. One commentator on CNBC said Gold was heading to $700. per ounce. The talking heads are questioning as to whether the bull market in Gold is over. Even long term bulls are getting discouraged and predicting lower prices in Gold. These type of events generally mark a bottom in the underlying asset.
Conclusion: The technical parameters are pointing to either a temporary or final bottom in Gold with a rally to at least 1700 looking like it is in the cards. If Gold makes it that high it will have to be seen as to whether it can break through the upper downtrend line. If Gold fails to hold support at 1580. then the upward consolidation will have failed and much lower prices for Gold could be seen.
The technical picture however places the odds in favor of higher Gold prices in the near future. A low risk long trade in Gold could be placed at these levels with a stop just below 1580. If the trade is stopped out then a short position could be entered with a stop placed just above 1580. The target for a breakdown of the consolidation pattern would be the rising 200 day EMA which right now sits at 1310.
The U.S. government at the absolute last minute agreed to an increase in the federal debt ceiling. The result wasn’t just sell on the news, it was sell more on the news. The markets appear to have no confidence whatsoever in our government officials and for good reason. To allow a critical decision like this to wait until the last minute for a resolution is a fool’s game. Unfortunately that seems to sum up the political capacity of our elected leaders.
As I indicated in my entry of June 21 a possible head and shoulders pattern was forming on the S&P 500. Then in my entry of July 14 I indicated that an inverse head and shoulders pattern appeared to be forming in the near term. We can now conclusively say that the inverse head and shoulders pattern has been negated and there are fully formed head and shoulders patterns sitting on the S&P and DOW.
Just because a head and shoulders pattern has formed on the major averages does not mean the market is going to drop further as a reversal off the neckline is bullish. In order to find out where the market may be headed at least in the short term we will look at various charts and technical indicators.
The S&P has dropped slightly below it’s 50 day EMA and is sitting right at the neckline of the H&S pattern. RSI at the top of the screen is in a downtrend and has not hit the bottom of the channel nor is it at oversold levels. The MACD looks like it may be turning up near the 0 level. The bottom indicator is Williams %R, an indicator that uses momentum to measure overbought/oversold levels. Readings below 80 indicate oversold levels. Right now it is reading 99.99 a condition that is extremely oversold. The last time it hit this level was in March, 2009 just prior to the start of the bull market. Also each time it has dropped below 80 since March, 2009 it has indicated a near term market bottom and quickly reversed upward.
If we take a look at the DOW the picture is almost identical except it hasn’t quite hit it’s 50 day EMA.
The U.S. dollar has formed an uptrend channel. There is a downtrend line from the May, 2010 top that was briefly broken through in July but the dollar retreated to the bottom of the channel. That downtrend line now coincides with the 20 day EMA which has acted as near term resistance.
Gold has been on a rampage but appears to have hit an intermediary top. A look at the chart shows that it has rallied right to the top of a huge ascending wedge pattern. A breakthrough of the top line would be incredibly bullish but this line should act as strong resistance. The RSI is in overbought terrritory as is Williams %R. Each time the RSI has moved into overbought levels it has tended to either quickly pull back or consolidate for awhile. (Note: In after hours trading gold has traded above the upper trend line. It remains to be seen if this will turn into a confirmed breakout.)
Conclusion: From a technical perspective the markets appear to be at a reversal point. I would expect a bounce in stocks and a pullback in gold. The current economic outlook appears to be deteriorating but the market looks like it has already factored that in.
The bull market since March, 2009 has been earnings driven. If earnings start to trail off then the market will correct for that. The U.S. dollar is in the dumps and there no longer seems to be a direct correlation between a weakening dollar and a rising stock market. Gold and bonds are acting as the risk off trade as opposed to the dollar. If the dollar can manage to rally it might be good for stocks as it would indicate that the U.S. economy is experiencing a sustainable recovery but the fundamentals do not appear to confirm that view. There is always the possibility of a QE3 which would put even more pressure on the dollar and further inflate the price of gold and other commodities.
It is too soon to say whether the bull market cycle is over or that a bear market cycle has started. It is also unclear how a continued weakness in the dollar will affect stock prices as this could have a tendency to inflate them along with commodities. We will probably have the answer to these questions within the next 3-6 months.
A few weeks ago the U.S. Dollar appeared to have bottomed and the talking heads were claiming that it was the beginning of a new bull market for the dollar. At the same time the Euro looked like it was heading into the trash can because of recurring European debt problems. Now however both fundamentally and technically it looks like the currencies have reversed course.
First the dollar broke down through long term support at 22. It then rallied back up to it’s 20 day EMA and hit massive resistance there as evidenced by the large red bar that looks like an outside bearish reversal candle stick. UUP couldn’t even make it to the downtrend line drawn on the chart. While UUP is trading in a massive descending wedge which normally breaks out to the upside, the wedge is wide and the dollar can sink a lot lower within the pattern. The MACD is also below 0 indicating a severe downtrend.
The Euro however is in a wide slightly wedge shaped uptrend channel. It stuck it’s neck below it’s 20 day EMA but then reversed course and is now trading above it. The MACD is well above 0 indicating a strong uptrend.
What is causing this reversal of fortune is a combination of fundamental factors:
1) China is dumping U.S. treasuries and is buying European debt.
2) U.S. economic data looks weak in the short term.
3) U.S. government debt problems are starting to come to the forefront of economic news.
Even if the dollar manages to head back up, there is now massive resistance at 22.
Conclusion: Commodities such as gold, silver and oil appear to have bottomed and are heading higher. As the dollar sinks further the commodity bull run should continue. Goldman Sachs now says that oil is headed higher and everytime Goldman speaks the market moves in the direction they predict. I see no reason why this time around should be different.
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.