-- Posted Sunday, 1 April 2007 | Digg This Article

This is the first time that I have been able to sit at my desk since the knee replacement op. The knee is fine but the back has been a real pain apparently from walking incorrectly for 30 years due to the wonky knee. Putting it back into the correct stance has taken its toll for the past two weeks. But all is progressing well thanks to the physioterrorist. Ouch, can they hit the wrong spot with unerring accuracy!! I would sincerely like to thanks all readers who sent get well greetings during this inconvenient period. I really appreciated both the thoughts and comments.

The markets have been like my back, they have had good days and not so good ones. There appears to be a large degree of uncertainty in the markets at the moment but frankly I am sticking to my dictum for the past two years that this is a resources orientated market and the rest are in the sidelines. When viewed in this light it all seems simple. We had a big commodities run that has been in a good correction for the past nine months to year. But this correction ended a couple of months ago. In some cases the progress has been ponderous out of the bottom of the correction while bases are built. The gold shares are classic examples. In others like the platinum shares the progress has been strong. My bottom line is that the commodities correction has ended and that we are back on track for further strong metal and commodity price moves to take out all the previous highs.

As far as general equities go I look at the Dow. It held the critical 12 000 support and as expected broke back above the resistance at R12 300. The 12 300 level is now acting as a support. BUT any break by the Dow under 12 300 followed by a dip under the critical 12 000 level would be disastrous. If the Dow can hold above the 12 300 support for a while and make further upside progress then I must look for new highs on the index.

Gold continues to churn above the $650 breakout level but appears to be reluctant to again attack $680. A break above $680 will trigger an acceleration of the gold price towards the $770 target area. I remain convinced that sometime this year we will see the all time $850 high taken out.

Frankly one can take a pin and stick it into the commodity stocks and make money. In my daily data I have continuously detailed the huge upside potential for Anglos and the break above the R350 resistance has been dramatic. There is a large upside potential for this market leader. Oil is another commodity that I have constantly detailed as a serious trend break back into a major bull market. The sub $60 level was a great buying area and I continue to look for the $78 peak on Brent Crude to be taken out this year. Copper also had a strong correction from an extremely overheated level. It too has bottomed out and copper stocks are among my selections for resource portfolios going forward.

There are some intermittent short term scares that Chinese growth is about to fall. But remember that India is growing at 8,5% and that the growth factor is not an exclusive Chinese prerogative, it is a Far Eastern effect. I do not see any real problems with Asian growth for several years yet so that all the minor rumours and shivers become ideal buying opportunities. Stay with the commodity stocks as the bulk of portfolio selections.

The DJIA is shown with the critical 12 000 support as the bottom flat line and the 12 300 support as the top horizontal. These are critical levels. If the Dow can bounce off the 12 300 support and move above the recent 12 500 high then I must look for a strong Dow going forward. BUT if the index dips back under 12 300 followed by a drop under 12 000 than a real bear market will ensue. These are the critical levels to be watched.

 

 

The S&P 500 has a similar picture. It held the critical a370 support and bounced back above the 1410 level. There is a top at 1440 that is impeding progress. But if the S&P can hold above 1410 and break back above 1440 then I will be very bullish for this index. Conversely a drop under 1375 will be disastrous. At this stage I favour the bullish scenario.

 

 

The NASDAQ chart is similar. It needs to hold the 2400 support and break back above the 2460 level to trigger a renewed bull trend but a drop under 2350 would be nasty.

 

Watch all these levels on the US indexes.

 

 

The US Goldbugs index (HUI) epitomizes the frustrating picture associated with the gold share market. Effectively it has done nothing for the past 15 months but meander sideways in a basic triangular pattern. But there is always a bright side. The bigger the trading pattern the larger and more forceful is the ultimate breakout. Patterns of this nature have a habit of catapulting out of their confines. The breakout will be worth the wait.

 

 

This is my favourite chart of the moment. It shows the Nikkei and its relative strength against the Dow.

 

After years of under performing the Nikkei has reversed trend and represents far better prospects than the US markets. For Offshore portfolios look at the Japanese mutual funds rather than US stocks.

 

 

The CRB index is shown relative to the DJIA. This commodity index has risen for the past year but its relative strength against the Dow has been static for the past four years. All my data indicates that this relative strength data is ready for the upside breakout to out perform the US indexes and show that commodity stocks are likely to be the runners going forward.

 

 

Some time ago I detailed the potential for a reverse head and shoulders pattern on the $ gold price. The neckline was at $640. The price broke out of the pattern and then had a pullback to test the neckline at the start of the month. Since then it has bounced off this support and is battling to build up enough strength to break above the $670 resistance. Once above this and I expect to see the gold price accelerate, if not catapult.

 

 

The Rand price of gold has broken out of a strong pattern and moved into a smaller flat bottom broadening formation. It needs a move above R4900 an ounce to trigger the next upside charge while remaining above the R4730 support level.

 

 

Platinum, apart from the crazy one day spike, has been dominated by the resistance at the $1250 level. This chart needs a break above this resistance to confirm the new bull trend. A move above $1250 will lead to a new all time high for this precious metal.

-- Posted Sunday, 1 April 2007 | Digg This Article

Technical Analysis Course: http://www.charts.co.za

Website analysis: http://www.utm.co.za

Gold Action is a fortnightly commentary on global gold markets produced by Dr. Clive Roffey who has been a leading independent commentator on gold markets since 1969.
Dr. Clive Roffey, Gold Action

© 1995 - 2019

Live GoldSeek Visitor Map | Disclaimer