Honest Money Gold and Silver Report: Market Wrap
Week Ending 2/8/08
A bear market has reasserted itself in the major stock indices. Lower highs and lower lows are occurring. This constitutes a downtrend. It is happening not only in the U.S. but in most foreign stock markets as well.
One of the precipitating factors affecting the world's stock markets is the unwinding of the yen carry trades that have been used to finance the many speculative bubbles that exist across the globe.
Simply put - when carry trades unwind, the yen goes up and stock markets go down. The yen has out performed almost all major world currencies in the last few months. Since the yen has rallied - stock markets have gone down.
The amount of carry trades that exist will take months and perhaps years to unwind, as they took that long to be "put on". We are closer to the beginning of the cycle then the end.
The euro has just recently broken below support defined by its lower trend line. It did so with a huge "gap" down.
MACD has put in a negative cross over and the histograms are in negative territory. RSI has been declining, but has made a small tick up.
Will the gap get filled, and if it does, will the move continue up and over the lower trend line, or will broken support now provide formidable resistance?
Below is the chart of the Yen/Euro cross. The higher the number the stronger the yen is, the lower the number the stronger the euro is.
The yen has out performed the euro for the past couple of months. It made a double bottom in Oct. - Nov. and rallied up to a high in mid-Nov.
From there the yen corrected down into the last week of Dec. It then rallied up to a higher high just above its present position.
Will the yen keep out performing, or might a double top be in the process of forming? Yen strength will be a strong headwind for world stock markets to face if it continues.
Yen/U.S. Dollar Cross
Since August until late November, the yen was stronger than the U.S. dollar.
From late Nov. until late Dec. the dollar out performed. Since the beginning of 2008 the yen has been stronger.
The U.S. dollar chart shows the dollar strength since late Nov. It rallied to a high going into the end of Dec., and then corrected down into the middle of Jan 2008.
From there the dollar rallied to a lower high, and then declined into Feb. It has now rallied back up again, making a lower high so far.
The blue lines indicate overhead resistance. The 78 level will be an important test for the dollar.
The rally is a counter-trend rally in an on-going bear market - even if 78 is broken above.
Gold gained $8.80 to close at $922.30 for the week (+0.96%).
The weekly chart shows RSI is strong at 74.31, but in overbought territory.
In strong bull markets, however, prices can become overbought and stay overbought for extended periods of time.
MACD is also well into positive territory. Histograms appear to be flattening out.
The daily gold chart shows a positive divergence in the RSI indicator.
RSI made a lower low, while price made a higher low. It remains to be seen if the divergence takes control or not.
MACD has a negative cross over, giving mixed signals (what else is new?). Histograms are slowly receding back towards zero.
Gold is in the lower half of its rising price channel as indicated by the two parallel blue lines.
Silver was up 0.24 during the week, closing at $17.11 for a gain of +1.42%.
The daily chart has RSI indicating a positive divergence, as it made a lower low and price made a higher low.
MACD appears to be setting up to make a positive cross over. Histograms are receding back towards zero.
The Hui Index lost 7.90 points on the week, closing at 433.66 for a loss of -1.75%.
The precious metal stocks falling during a week when gold was up creates a negative divergence.
The daily chart shows the lower support line (red line) being broken through to the downside. Friday's rally is bumping up against its trend line, which has turned from support into resistance.
The Hui is at an important juncture: either it will break above the trend line or it will fail and head back down to test its recent lows.
RSI shows a positive divergence, as it made a lower low, while price made a higher low. MACD & histograms are giving mixed signals.
Since mid-December natural gas is up approximately 20% and has been out performing oil.
It closed the week out at 8.30 and is approaching strong overhead resistance at 8.40, as the blue horizontal line indicates.
If 8.40 is taken out and held, an assault on the 9.04 high becomes the next target.
RSI is turned and headed up, and MACD has made a positive cross over. The histograms have moved into positive territory as well.
There are a fair amount of shorts that are going to have to cover if the price breaks through the 8.40 level.
The United States Natural Gas Fund
The United States Natural Gas Fund has been responding to the rise in natural gas. It has broken above its upper trend line.
MACD has put in a positive cross over and the histograms have gone into positive territory as well.
RSI is strong and headed up towards the 70 level.
Chesapeake Energy Corp.
Chesapeake Energy is also responding to the rise in gas prices, breaking strongly above its upper trend line.
RSI is strong and headed up, while MACD has put in a positive cross over and the histograms have turned positive as well.
Kinross Gold Corp.'s chart shows a positive divergence in its RSI indicator. RSI made a lower low, while price made a higher low.
Price has recently bounced off its lower support line.
MACD is still dominated by its negative cross over, but it may be flattening out and preparing to make a positive cross.
Time will tell, it's a bit early yet. Histograms are slowly receding back towards zero.
With the electrical supply problems in South Africa, the SA mines have been losing production and revenue. Platinum prices have skyrocketed ahead because of the reduced supply.
Platinum mines not located in South Africa have seen their stock price rise very fast and hard. The chart of Stillwater Mining shows the recent strong move up. Volume expanded on the move up.
Note that our stock portfolio holds several of the above stocks. Good luck, good trading, good health, and that's a wrap.
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