-- Posted Monday, 11 February 2008 | Digg This Article
| Source: GoldSeek.com
Honest Money Gold & Silver Report
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
