Honest Money Gold and Silver Report: Market Wrap
Week Ending 5/23/08
The big news this week was the report by the National Association of Realtors that sales of previously owned homes fell 1% in April, while the supply of unsold properties reached a record level of 11.2 months as measured by the present sales rate.
Since April of last year, the median home price has fallen 8%. Needless to say, anyone that thinks the housing market has bottomed ought to do a bit of rethinking.
The U.S. Department of Labor reported that the producer price index for finished goods increased 0.2% in April - seasonally adjusted.
Without seasonal adjustment, finished goods increased 0.7% in April. From April 2007 to April 2008, finished goods prices have gone up 6.5%.
Energy costs have increased 17.5% in the same time period. Nonetheless, as the experts tell us - there is no inflation, as long as you don't buy anything. Stagflation may be the appropriate phrase.
None of the above went unnoticed by the financial and housing sectors of the stock market, as the charts below show. I find it hard to fathom how some are claiming a new bull market in stocks has begun when the backbone of our economy is down and out for the count.
I could well be wrong, but I go on record as saying that we are in a bear market the likes of which have not been seen since the Great Depression. But let's look at the charts and see what they are saying.
The above chart of the housing index does not look very healthy, and it is getting sicker by the week, as this week it fell over -10%.
It could be bottoming; it will depend on whether the early 2008 lows are broken below or not. Time will tell. As of now - I care not to take a bet on it changing.
Next up is the chart of the financial sector, which is the life-blood of the market and economy.
If money is being made than this sector should be performing well. The chart seems to be saying that something isn't quite right in paper fiat land.
The broader market is starting to have problems once again, falling -3.47% for the week. It appears that the bear market rally is over and that the longer term trend is reasserting itself.
Notice on the chart below that the 200 ma provided stiff overhead resistance that was not penetrated.
The 50 ma is now being tested; and the lower trend line has been broken below. The bear is prowling about once again and caution is warranted.
As the stock market resumes its march downward, bonds are headed up. The Fed is most concerned in keeping the bond market alive and well, as the only two ways the government takes in money is by taxes and selling bonds.
When bonds go up in price - interest rates go down, which does not help the U.S. dollar; and if anything could use some serious help - it is the dollar.
Gold and the dollar tend to move in opposite directions, which means that gold and bonds have been moving in the same direction - up.
As mentioned above, the dollar is not having a fun in paper fiat land, thanks to the Federal Reserve, which if nothing else, definitely knows how to destroy the purchasing power of a currency. The chart below shows the horrid job the Fed has done.
The next chart shows the Euro and gold trending in the same direction, while the dollar heads towards Hades.
The bull market in commodities is still alive, although a bit extended and due for a correction. Next up is the weekly chart comparing commodities to the U.S. dollar. Notice how they move in opposite directions.
Gold had a pretty good week, up about 2.5% and holding well above the $900 level. The daily chart below has mixed signals (what else is new).
I don't like the negative divergence between RSI that made new highs and price, which failed to make a new high.
Price is also bumping up into the upper BB, which may suggest a short term correction is around the corner. ROC hasn't quite made up its mind yet.
The weekly chart looks a bit more promising, if that's possible in the markets. RSI has bounced off the 50 level and is headed up.
MACD is still under a negative cross over, however, it appears to be rounding off and getting ready to move up. Follow through and confirmation is needed.
STO has made a positive cross and is headed up out of oversold territory. Price is sitting just above the middle Bollinger band.
The Bollinger bands are converging, suggesting that a significant intermediate term move may be developing.
Silver had an excellent week, up over +7%. I was fortunate to add CEF to the portfolio on Monday and to sell it on Thursday for a nice gain. PAAS was also sold to book profits.
There is a bit of negative divergence and some frothiness on the chart, however, RSI has plenty of room to move up if it wants to.
GDX was up just under +1% for the week, so it under performed physical.
I'm not too thrilled with the gap that is looming in the distance below on the daily chart above. Something suggests that it may want to be filled. Notice that the downward sloping trend line is playing tag with it.
All the other indicators are either rolling over or have actually started to head down, particularly the fast STO indicator.
The signals are mixed but the weight of the evidence is pointing to more consolidation prior to any big lift off and sustainable rally in the very near future - a bit longer in time could be just what the doctor orders.
The weekly chart below is a bit more encouraging. RSI shows a positive divergence. A double bottom at 42.5 may have formed. Volume decreased on the decline.
MACD and the histograms still have their work cut out for them.
The latest full-length version of this week's market wrap is available only my web site, including all positions bought or sold this week.
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