A Merrier Christmas Ahead for Gold Bugs or Greenback Bulls? - Sector-Wide TA
The end of the year is almost here and up until now it was a very strange one as far as precious metals and their accompanying stocks were concerned.
The strange part is that while Gold and Silver have moved along quite nicely, mining stocks, especially the juniors, have had a rough year. There where gains followed by huge losses, with some of the junior stocks losing 50% of their value or more all while their fundamentals haven't changed very much at all. Even stocks that made big discoveries suffered after an initial gain. If we compare prices of a number of these junior stocks from the beginning of this year with the current price of Gold and Silver, we can clearly see that the stocks are lagging, and by quite a bit in most cases.
This cannot stay this way for long, so there are 2 possibilities:
The price of Gold and Silver will correct, or
The stocks will make up for their lost ground with significant rallies over the coming months.
Because I don't think we will see a breakdown in the price of Gold and Silver (besides the 'normal' corrections along the way), this means that the juniors are in for a catch up rally sooner or later.
Maybe the current pressure can be blamed on the overall sentiment in the equities market. The international indexes have suffered a great deal lately and seem to be on the verge of a collapse. However, when things seem to be this obvious, they usually don't happen. The overall negative sentiment is the right environment for a relief rally in the indexes that could last for days, weeks, or even months. This could prove to be a great opportunity for those that missed the exit the first time.
This last month of the year should be very interesting to watch. Will Gold, Silver, and Oil end the year with a bang or will we see a correction before we will see higher prices in 2008. The charts for the three are a bit clouded, and they could go either way this last month. Let's hope they are prepared to give us a good Christmas.
All charts current as of the close on Friday, November 30th, courtesy of Stockcharts.com
The chart is telling us that there could be some trouble ahead of us.
We see a lower high followed by a break below the 14 d. MA and, most likely, a move towards the 50 d. MA and/or the support around the $750 level. The overall conditions are deteriorating a bit, with the RSI, DMI (negative cross of buying with selling power) and the MACD all indicating that a bigger correction could be just around the corner.
The support levels (blue line and the 50 d. MA) have to hold to prevent these expectations from becoming a reality. If they don't, we will most likely see a test of the support zone around $720-$730.
We will know soon enough, probably this coming week, whether or not the supports will hold. If they do, this should make for a promising Christmas holiday season.
Just like Gold, Silver produced a lower high and the last candle could spell trouble ahead.
Silver already pierced below the 50 d. MA, but the bulls managed to get it back to close above this MA. This could prove to be a nice bottom candle, but only if it is followed by a black candle on Monday, favourably one that will take Silver back above the 14 d. MA.
This will be a difficult task when we take the RSI, DMI and MACD into account, which are all hinting towards a continuation of the current downtrend, targeting the support at $13.50. It will take a good amount of effort by the bulls to prevent this from happening.
Oil has put in a very nice performance this last month. After an initial short-lived correction, it again raced higher, nearly breaching the $100 mark we mentioned a few months back.
In last month's update we recommended profit taking at these levels (between $95 and $100), and then sitting back to see what would happen next. This advice still stands. Oil is having trouble breaking through the $100 mark, and the chart is still hinting towards an ongoing correction. Currently, Oil is battling with the 50 d. MA, and a dip below it could trigger a renewed fall to the supports at $84 and $80.
A rise above the 14 d. MA can be taken as a first sign that the correction is over and a new wave higher is about to begin.
The dollar is showing signs that the chances for a bigger bounce higher are good. There is positive divergence visible in the RSI and MACD, and a buy signal could be on the way in the DMI (cross of buying power above selling power).
If this bounce materializes, we could see a rise towards the resistance just below 78 followed by a test of the magenta channel and even the 80 mark (the neckline of the huge Head and Shoulders pattern we saw a few updates ago). A successful back test of this 80 line would confirm the H/S pattern and would set the stage for a huge, very long and powerful decline to levels not shown on the chart; in other words, a total collapse of the world's reserve currency.
Copper broke down since the last update. The cross support at $330 didn't hold and after we saw a back test of this $330 level, Copper tested the support at $290.
This was too much, too fast, and the bulls stepped forward bringing the price of Copper back above the 14 d. MA, a first sign that this correction might soon be over. Although Copper still isn't completely out of the woods, the first beams of light are penetrating through the trees.
The RSI, DMI (pos. cross of buying power coming up?) and the MACD seem to be getting ready for a bigger move higher. They are trying to support a break above the resistance zone in the chart, and if this break occurs Copper will then have to charge ahead to also get back above the important 50 d. MA. The bulls have to get things moving and keep it moving until safer waters are reached.
The above is an excerpt from the technical analysis portion of the monthly Resource Fortunes Premium Newsletter publication, available in its entirety for subscribers at http://www.resourcefortunes.com/. Please visit our homepage to sign-up for our free newsletter as well as download a free sample issue of our Premium Newsletter.