Honest Money Gold and Silver Report: Market Wrap

By: Douglas V. Gnazzo | Sun, Feb 10, 2008
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Market Wrap

Week Ending 2/8/08

Intro

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.

Euro

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?

Yen/Euro Cross

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.

U.S. Dollar

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

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.

Gold Daily

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

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.

Hui Index

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.

Natural Gas

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

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.

Stillwater Mining

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.

Come visit our new website: Honest Money Gold & Silver Report

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Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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