Honest Money Gold and Silver Report: Market Wrap
Week Ending 3/28/08
Regardless of all the money the Fed has thrown at the system and the constant lowering of interest rates, the economy remains in the doldrums.
The sub prime debacle has much further to go and it will drag other toxic derivatives into the fire that as of yet, remain unknown to all but a few. By the end of the year they will be front page news.
Sales of new homes in the U.S. fell to the lowest level in the last thirteen years during February. The Commerce Department reported a ten month supply of unsold homes based on the Feb. sales rate - a twenty-six year record high.
Between lay offs, mortgage problems, and high prices for oil and food, the consumer isn't feeling very cheery. The Conference Board's Consumer Confidence Index fell from a revised 76.4 reading in February to 64.5 in March, the worst since March of 2003.
Consumer confidence has gone into a free fall since last July when it hit a six-year high of 112.6. The "expectations index", a leading indicator, fell from 58.0 to 47.9, its lowest level in 35 years.
U.S. consumer spending rose 0.1% in February, which was the slowest pace in more than a year, another sign of economic weakness.
And as proof that misery loves company - inflation in the euro region was up to 3.3 percent in February, the fastest pace in 14 years, while U.K. Consumer confidence was the worst since 1993 and the French index made a record low as well.
The purchasing manager's index of retail sales in the euro area fell to a seasonally adjusted 48.2 from 52.4 in February.
Alex Weber, head of Germany's Bundesbank and a European Central Bank council member, said that inflation was becoming a concern and suggested that higher interest rates may be necessary. This may put a backwind to the euro and a headwind to the dollar.
The stock market continued down this week, with the broader market losing about 1%. As the chart below shows, the S&P is trying to put in a bottom.
A double bottom appears to have been put in with the subsequent rally that ran into its 50 day moving average, which provided stiff resistance.
Although things are stretched to the downside suggesting a rally may be in store, the chart still remains bearish, as the 50 ma has crossed below the 200 ma and both are falling lower.
A lot of work needs to be done to correct the technical damage done to change the longer term bearish trend back up. As of now any move up will be a counter trend rally until proven otherwise.
The next two charts show that some changes may be starting to occur in the bond market. Interest rates have been coming steadily down and bond prices have been moving higher.
Short term rates have come down much farther and faster than longer term rates, as the first chart clearly shows.
It will be a difficult task for the Fed to support the dollar and the bond market; it appears one or the other will have to give way; or in the case of the dollar further way, as it already has given up a lot.
Next up is the daily chart of the 20 Year Treasury bond Fund. A broadening top appears to be forming. The yellow horizontal band represents resistance turned support that is being tested. Price has just barely broken through and further confirmation is needed.
If support gives way it will once again become resistance, suggesting that longer term interest rates may be getting ready to move higher and bond prices lower.
The dollar acts as if life support wouldn't help it. Perhaps it's putting in a double bottom. If a rally does occur there is plenty of stiff resistance overhead as indicated.
The sixty-four dollar question is whether the commodity bull market is over or just taking a respite.
A trend is in force until it isn't, and as of now commodities are still in a bullish trend. This could very well change, but for now it is what it is.
The chart below shows several commodities: gold, silver, oil, natural gas and agricultural products all far out performing stocks, bonds, and the currencies.
It would seem that paper is out and real stuff is in, at least for the time being.
Below is the weekly chart of natural gas, which has been doing quite well as of late.
The blue horizontal line represents significant resistance that has been broken through to the upside and is now support.
Next up is the United States Gas Fund, which is a good way to play natural gas without the risk of futures and options.
The chart shows a strong move up has been underway since the beginning of the year.
In early March a correction occurred and support was tested and held (red horizontal line).
Price has now started rising up from support at $44 and is presently at $47.49.
RSI is headed back up and MACD appears to be getting ready to put in a positive cross over. The histograms have receded back towards zero and may be about to turn positive.
Notice the accumulation/distribution index at the bottom of the chart. It shows strong and steady accumulation (buying or demand) and has just turned up again.
Gold held its own for the week, advancing up about 2% after its recent sharp correction down from making all-time highs.
The daily chart of GLD shows that its bottom trend line (blue) has been broken through, which suggest that there may be more downside yet to come.
At a minimal a good deal of backing and filling is needed before another leg up begins. The red horizontal support line has been breached as well and is the first target to overcome.
The weekly chart shows MACD about to make a negative cross over, which would indicate more downside is likely.
RSI has made a slight up tick, so the signals are somewhat mixed.
Histograms have just turned negative.
Notice that the blue trend line, the horizontal support line, and the 20 ema are all converging near the same level.
If this level is breached there will be more downside action. The weight of the evidence suggests such is likely.
Silver is essentially in the same boat as gold. It had moved to new highs and corrected accordingly. Likewise, its rally for the week was stronger - up about 6%.
The daily chart shows RSI and MACD both headed down.
The histograms are slowing starting to recede back towards zero from well into negative territory.
The weekly chart of SLV shows a slight up tick in RSI. MACD is headed down, however, and appears getting ready to make a negative cross over.
The histograms have moved from well into positive territory back towards zero.
Price bounced off its 20 ema earlier in the week. The yellow horizontal band represents significant support, which may be tested.
The gold stock index ended up 10.11 points on the week for a gain of +2.30%.
The daily chart shows the hard fall from its recent all-time highs, with horizontal support (blue line) being broken through to the downside.
Price is below its 50 day moving average, which is starting to roll over. This week's rally hit broken support that has now turned into resistance.
Histograms are slowly beginning to recede back toward zero, the operative word being slowly.
RSI is rolling over and MACD is still under a negative cross over.
The weekly chart doesn't look much better.
RSI has leveled of from its descent but which way it goes from here is unclear, although the path of least resistance appears down.
MACD has put in a negative cross over, which suggests more downside action. The histograms confirm as they have gone into negative territory.
Price is still within its ascending price channel and is testing its lower support line. Notice the 20 ema is also being tested.
What our money paid for oil is buying
Good luck. Good trading. Good health. And that's a wrap.
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