-- Posted Monday, 18 September 2006 | Digg This Article
My wife's daily reading is always focused on the hatched, matched and dispatched columns to see who has been born, engaged or died. She often reads out a particularly heartfelt obituary and those that eulogize the deceased. I often comment that I find writing flowery obituaries a somewhat distasteful practice as frankly the person to whom they are directed is no longer able to receive them. It would be far better to write out ones feelings well before they die and make sure that the person knows how much they are loved in life and not in death. I wonder how many people actually tell the person how much they are valued before they die. Or are obituaries an expression of guilt that the feelings were not conveyed before death? So tell your loved ones that they are loved. It is far more satisfying for both the giver and receiver than cold post mortem words in a newspaper, no matter how beautiful they are.
The Dow pushes to attempt to break above the 11500 resistance but is continuously thwarted. There is a serious sell divergence on the hourly chart of the past ten days and I expect to see a pullback in this index. This US marker remains the key to global markets. If it can penetrate properly above the resistance at 11500 then further upside is likely. But if it fails and breaks back below 10500 then the double top pattern will have been completed and a serious negative phase will ensue. The Dow really is a key chart at this point of time.
Meanwhile the gold market has again been hit by US selling. Have you noticed that the gold price remains stable in Far East and European trading but the moment the US market opens they hit it. This smacks of hedge fund games that are triggering computer generated stop loss levels. It certainly does not reflect true market behaviour.
Many analysts are detailing that the gold market is over and that a new bear downside to around $400 is likely. If this were a real bear trend then all markets would be negative on the gold price, not just the US traders. Secondly if this is a new bear trend then why are the real marginals like DRD and Afgold still holding well above their lows while the less leveraged stocks such as Goldfields are being hammered.
As far as I am concerned the bull trend on both bullion and the shares remains intact. I do not believe that this is the start of a new bear market but is rather the final C wave sell off of an old correction that has been in progress virtually the whole of this year.
The gold market has a habit of acting between the poles of euphoria and despair. Contrary opinion is a classic method of analyzing the gold market. When the gold price rises every second analyst and his dog suddenly appear out of the woodwork to forecast fantastic upside prices. But when a sudden dip occurs they just as rapidly disappear and are replaced by the doom and gloomers who continue to forecast frightening downside possibilities.
Go back to the old analytical tool. How are the gold shares compared to bullion? I continue to discount any analysis of the bullion price if it is done in isolation. In my opinion it is necessary to cross reference all one's bullion analyses with that of the shares and relative strengths against other precious metals and global indexes. Only by subjecting the data to a rigorous comparative examination can one draw substantive conclusions. The gold price does not act in isolation it is an integral part of a very wide and complex market structure.
While bullion has been smacked the Rand has weakened as expected. Whilst the South African economy remains robust there is a large degree of uncertainty in the minds of potential overseas investors related to the political succession of not only the ANC but also the government. Political instability is the death rattle of currency stability and any minor economic wobble will continue to weigh heavily on the strength of the Rand.
This is my Elliott Wave analysis of gold that has been in place for over four years. I was expecting a 7-8 correction. The pullback to test the $570 level has retraced 50% of the rise from 5-6. The extent of the correction has not been matched by all the shares. There is a possibility that the current downside reaction is the third leg of a five wave triangular pattern that could continue to effectively move the gold price sideways as it oscillates around $620 for the next six months. The other scenario from the above analysis is that the current downside is the final C wave sell off in a weak correction. In this case I would expect a serious reversal of the gold price in the very near future. It is very difficult at this point of time to decide which of these scenarios is the most likely. But in both cases the bottom line is that the downside reaction from this level is likely to be extremely limited and that forecasts of a fall to $410 are extremely unlikely.
There is a second situation that could also arise. Instead of the large nine wave move in the top chart we have a classic 1-2 and 3-4 potential wave set up. If this is the case it only alters the upside possibilities. In the top case the 7-8 correction would only subtend a short final wave rise to about $800 but in this case the larger 3-4 wave correction would indicate a move closer to $1000 as the final wave. Either way the indications are that the major bull market is intact and that the downside risk fron the current position is limited.
The chart of Brent Crude Oil is shown above. The oil price is being singled out as the main cause for the falls in metal prices and the rise in the Dow. The cheaper oil price indicates lower inflation and better profits for industry. But look at the data. I had expected a correction in the oil price back to $68. It has fallen in a heap to under $63. But in mapping out this fall it has pushed the price to its most oversold level in several years. The current price is ridiculously oversold on all oscillator studies and is due for a very sharp upside reaction off these desultory levels. Both the MACD and RSI have moved outside their Bollinger bands in oversold areas and this normally forecasts a serious trend reversal.
Confirmation of the potential reversal in the oil price is given by the huge grouping of the oscillators in their oversold regions. A bounce back up to at least $70 is more than likely in the short term.
The same oscillator grouping in the buy zone is indicated by all the oscillators on the $ Gold price. This grouping indicates a potential major trend reversal. There is now resistance on the gold price at $625 but a move back above this will confirm a serious upside trend reversal.
This is the end of an old correction NOT the start of a new bear market. For investors it is another major low risk buying level.
Platinum also has the same oscillator grouping in its buying zone. This is a trend reversal signal and one that needs to be viewed seriously.
Just to complete the precious metal trio Silver also has the same oscillator buy grouping. In addition Palladium also has the same data.
$Gold remains in its upwards trend against the Dow. There is no sign of any sell divergences on the RSI oscillator in the top frame on this weekly chart. Although the short term data has had a minor downside blip the long term data remains intact in its bullish mode and I expect to see the precious metals continue to out perform global equity indexes.
The JSE Gold Index has effectively been inside a rectangular correction since the start of the year. This is not a new correction but an old one. All the oscillators are grouping in their buying zones and an end to this long correction is in sight.
The JSE Platinum index has also been inside a corrective phase since May. Once again all the oscillators have grouped in the buying zone and I expect to see a trend reversal this week.
-- Posted Monday, 18 September 2006 | Digg This Article
