The Bottom - What Now?
First let me wish you all a happy and prosperous new year.
The happy part is mostly up to us, but as for the prosperous part it's going to be very difficult for most of the world's population with the current recession. It seems that the economy is getting worse by the week, with increased layoffs, dire profit warnings, and looming bankruptcies.
Let's face it, 2009 will be a very challenging year, not only economically but also socially since recessions almost always lead to some kind of social unrest and are a good feeding ground for extremist movements to gain traction.
On the money front, investors will be very eager to earn back some of the losses they suffered in 2008, but will they succeed? I honestly don't know, because the investment world as we know it has been changed forever by the events that rocked the financial world in 2008, with more to come in 2009. The only thing I am certain of is that somewhere along the road Gold and Silver will claim their rightful place as solid investment opportunities, and perhaps even regain their place as the visible backbone of a new financial system.
To get a better perspective of what we can expect in the early months of 2009, we will be presenting you with both weekly and daily charts in this monthly update.
Gold's weekly chart is improving, and if Gold manages to break the downtrend (i.e. magenta line) things will begin to look very bright again over the next several months.
The technical conditions are very well positioned for a further move higher as indicated by the RSI and MACD, and if this rise materializes we can expect Gold to take on the highs made in 2008 perhaps much quicker than everyone expects.
The important level to watch is the support at $850. This support has to hold in order to keep the positive outlook alive. If it breaks down, we will most likely witness a new decline towards the support level at $720 to $700.
The daily chart is showing us that the current uptrend is very well supported by the RSI, DMI (buying power), and MACD. The MA's are also in a solid uptrend and as long as Gold manages to stay above the 14 d. MA, higher levels are expected.
The first hurdle (i.e. magenta line) should be broken this upcoming week, after which the resistance zone will be targeted. By then, the technical condition will most likely be overbought, leaving room for a correction.
For now the chart looks very solid provided the aforementioned support at $850 is not breached.
The weekly Silver chart isn't as positive as the Gold chart. Although Silver is currently in an uptrend, it is still below its 34 w. MA and only just above its 17 w. MA.
This small uptrend is taking the shape of a flag pattern, a continuation pattern of the trend that led up to the pattern, in this case a downtrend. The bulls have to avoid the completion of this pattern. They have to force Silver to break out to the upside, most favourably to above the 34 w. MA.
The RSI and MACD are already moving in the right direction, so the 'only' thing we need is the added support of the Silver Bulls.
The daily chart gives us a clearer look at the current uptrend. It tells us that this trend is well supported by the technical indicators.
The 14 and 50 d. MA are both rising with Silver above them, indicating that the daily trend is most definitely up. The encountered resistance at the current levels should be taken out very soon since the RSI, DMI and MACD are all in positive positions.
A break of this resistance level should lead up to a quick rise back to the $14 level, where we could then expect a correction can to take place in order to cool things down.
For now, higher prices look very likely.
Oil was the star performer of 2008 until a fierce fall started which not only erased the gains made in 2008 but also the ones made in 2005, 2006 and 2007!
Such a tremendous fall is screaming for a bounce, especially because this drop occurred without any decent correction to the upside. The chart is extremely oversold and just like a rise is normally accompanied with an intermediate correction, a fall should show some correction to the upside now and then. The lack of corrections indicates that investors are too scared to buy and that most of the people that want to sell have already exited their positions.
The chances for a huge bounce are rising by the week, as there must be practically no sellers left to take the price lower. The chart is showing such extreme levels, whereby oil was forced so far below its 34 w. level that a bounce towards this MA seems very likely sooner or later.
The daily chart is showing us that the beginning of a reversal could be in progress with Oil now rising back above the 14 d. MA.
The RSI and MACD are both showing a lot of positive divergence with this decline, indicating that some positive pressure is/was building. Currently, the RSI is on the verge of triggering a buy signal for the first time since it dropped below the 50 level in July of last year. The DMI (buying power) has already triggered a buy signal and the MACD is well on its way to test the magenta resistance line.
If this current trend holds, we will witness multiple buy signals in the chart opening the door to much higher prices.
Last year the USD managed to bottom before staging a big rally into the second half of 2008, only to end the year with a sharp decline that erased about half of its gains..
The uptrend could be counted as a 5 wave pattern, suggesting that the current fall is just a correction in the newly formed uptrend. If so, this correction could take us even lower then the low made at the 78 level, because many corrections take the shape of an ABC pattern.
The readings of the indicators are mixed; the RSI seems to have bottomed at the 50 level, whereas the DMI and MACD are still sending sell signals. As long as the USD is below the 17 w. MA, an ongoing correction is very likely with a target of 78 and perhaps even 76.
In the more detailed daily chart we can clearly see that the USD dropped below the established uptrend that started in July, indicating that the trend is loosing steam. The drop below this line suggests that the USD could fall further or at least only manage to move into a sideways pattern.
As long as the support levels hold up, a sideways pattern is the most likely outcome to expect. However, should the USD fall below the 14 d. MA (and the support level) we could witness a quick fall down towards the 78 and then 75 level.
The price of Copper took a big beating last year. It was thrown down from the $400 level, ending the year at the $125, a level not seen since 2004!
The drop was without any upside correction whatsoever, forcing the chart into extremely oversold levels. Sooner or later this has to lead to a powerful bounce, so much so that this bounce could even lead to a retest of the 34 w. MA which is currently at the $275 level.
The RSI is already slowly rising within oversold territory, and the MACD is slowly turning sideways getting ready to trigger a buy signal.
All charts are courtesy of www.stockcharts.com
The expectations of a possible bounce in the weekly chart become more visible in the daily chart. The magenta lines indicate that the pace of the parabolic downtrend is coming to an end.
The first positive step has already been made with Copper moving back above its 14 d. MA. Additionally, the RSI, DMI (buying power) and MACD are all moving into perfect positions to support a further rise of Copper, most likely to above the 50 d. MA, which would itself trigger a Long(er) term buy signal.
The upcoming weeks should be very interesting.