Sunday, November 25, 2007
The chart itself actually shows the price of gold, but we have the RSI of the inverted US Dollar on the top instead. The areas highlighted indicate the times where there is additional risk involved in holding gold. I feel that 5 out of the 6 signals given were fairly reliable. (By the way, I still feel that the US Dollar is in the process of bottoming short term).
Some of the past charts were a bit on the complicated side, which I am not sure is good or not. In any case, here is some traditional technical analysis on the Gold Stocks ETF, GDX:
This chart utilizes an easy to use moving average crossover system. Whenever the 9 day EMA crosses over the 20 day SMA, a buy signal is triggered and vice versa. This chart also shows a trend line that has just been broken.
Recently there has also been a bearish moving average crossover. I think I will stay bearish for as long these lines stay crossed. If they cross back, then most of the analysis I have done in the last few posts will be proven incorrect, and a loss will have to be taken, but that is the cost of doing business.
A moving average cross back is one possible scenario. Another possibility is that there will be another wave of selling, which would be a B wave for Elliott Wave folks out there. This would also complete a complex head and shoulders pattern that appears to be forming. I feel that both situations are possible, but that the latter is more likely.
The next chart is not directly related to gold, but involves the TSX. On the top panel we have the Japanese Yen divided by the Australian Dollar. On the bottom we have the TSX. I showed this relationship before, but this chart is a much longer term perspective. In fact, this chart goes back to the end of 2002, which is where the TSX bull market began.
I think a lot of people feel the bull market in stocks worldwide over the past 5 years has at least partially to do with the Yen Carry Trade. I do not think that the fact that these 2 charts are almost perfect mirror images of each other is a coincidence. What I find slightly worrisome is that the carry trade barometer in blue has, for the first time, not made a lower low. This could mean the carry trade is starting to dry up, and, if that is the case, it would not be beneficial to the TSX.
Saturday, November 24, 2007
The fact that the Canadian dollar fell while gold rose finally gave some relief to Canadian holders of precious metals, which brings us to the first chart. The following chart shows the price of gold denominated in Canadian Dollars on the top, and Canadian gold stocks on the bottom:
It seems that very few technical analysts look at the price of gold in Canadian dollar terms. This is unfortunate, since most of the companies inside the major gold indexes are Canadian. If you look at some of the companies inside GDX, you will find names such as Barrick Gold, GoldCorp, Kinross, Agnico Eagle, and Yamana, and these are all headquartered in Canada.
This means that these company's profitability will be directly affected by gold's price in Canadian dollars. Anyway, if you examine the above chart, you will notice that Canadian gold is at what could potentially be triple top resistance.
This resistance is also round number resistance. This is because the resistance area has formed where Canadian gold has reached the $800.00 mark. Looking at it another way, gold in Canadian Dollar terms is at the same level that it was back in May 2006.
If Canadian gold fails at this level, it will have ramifications for both Canadian and American gold investments.
Saturday, November 17, 2007
This post will provide additional evidence to show that commodities are in correction mode. Let's first have a look at silver. Here is a daily chart of silver going back to February 2006:
What I find significant about the above chart is that silver has just formed a bearish double top formation with its old May 2006 high. The well known technical analyst of the 1920's, WD Gann, stated that if the distance between the tops of a double top formation are far apart, the bearishness of the pattern is increased. I therefore feel this event is a major negative for silver.
Also in the above chart I have highlighted the major volume spikes that have occurred for this ETF. These volume spikes encapsulate the fear and greed present in the market, and show when there has been climactic buying and selling.
Finally, if you look very carefully at the above chart, you will see that the Silver ETF has just formed a bearish island top formation. I have enlarged this pattern in the image below:
In my view, islands represent major shifts in psychology in the market. In this case, the shift was from bullish to bearish. The above image shows that silver was demolished on Monday, and although not shown, this price action occurred on heavy volume. Obviously, this is a bearish combination.
This next chart shows a daily chart of the US Dollar on the top panel. On the bottom panel, we have an MACD histogram of the ratio of US Stocks divided by International stocks.
This indicator can help detect strength and weakness in the US Dollar. The rationale behind it is that when investors feel that the US Dollar is going to start strengthening, they will be more inclined to pull some of their money out of international stocks, and reposition themselves in American stocks, to take advantage of dollar strength.
Everything else being equal, investors would rather be invested in stocks where the local currency is rising. This means that movements in this ratio, which are translated into movements in the MACD below, usually show when US Dollar strength is in the pipeline.
I have highlighted the areas where the intermarket picture was hinting at US Dollar strength. I think that 5 out of the 6 signals were fairly accurate. What is important to note is that we are very close to getting another signal.
If the US Dollar finally finds some strength in the coming weeks, it will add negative pressure to commodities.
Also worth mentioning this week is that Gold put in a large red candle this week, and the TSX is clearly in a downtrend. I would definitely like to see a positive moving average cross over before going long again.
So, all in all, at this time, I feel that gold, silver, and the TSX are in a corrective mode, and I did not see any evidence in the charts to indicate a reversal at this time.
For additional analysis of the TSX and Commodities, I highly recommend the following blog. Thanks for visiting.
Sunday, November 11, 2007
This post will present further evidence to support a bearish viewpoint. The charts presented in the last two posts are still in play, and this post is meant to supplement this view. Let's get right to it by looking at a weekly chart of the XAU:
In the chart above, each candle represents one week of price action. Last week's candle is in the form of a shooting star. This means that the bulls pushed prices up intra-week, but then the bears stepped in and wrestled control away from the bulls, and closed the price near the week's opening price.
The chart above shows two other times this pattern happened. Now, I outlined this same candle pattern a couple of posts ago, and, although prices did retreat after this candle was formed, prices bounced back up again afterwards. The main difference between then and now is that the above chart is a weekly chart, and candle formations here tend to be more reliable.
The next chart is a weekly chart of the Canadian Dollar. Because the CAD is a commodity currency, if it begins falling, you know that gold and oil are likely falling too. Interestingly, the CAD is more overbought now than it ever has been in its existence. The chart below uses a 25 week RSI, which means that prices really have to move to register a signal.
Another point in the above chart is that the Canadian Dollar's advance seems to have been split into two waves, and currently both these waves cover the same amount of ground. That in on itself is not particularly bearish, but it is worth pointing out.
Like the weekly XAU Chart, the CAD chart also formed a bearish shooting star formation. The chart below presents an enlarged view. You can also see that the 9 week RSI has reached an extreme level:
Several posts ago, I showed a chart that divided the Yen by the Australian Dollar to get an idea on how nervous carry traders were feeling. If you have not read that article I would recommend that you do, because I think it explains last week's TSX sell off. Here is an update on that chart:
I know that the above chart looks quite busy, but there is a lot of value in it, in my opinion. The main thing to note is that the carry trade index in the top panel trends in the opposite direction of the TSX in the bottom panel.
What concerns me now is that the carry trade barometer is forming a potential triple bottom. If the Yen continues to appreciate relative to higher yielding currencies, it will squeeze out a tremendous amount of money from stock markets worldwide, including the TSX.
I have never released this next chart before. This chart shows a daily chart of the TSX on the top, and a new indicator on the bottom. This is related to an indicator called the McClellan Oscillator.
In a nutshell, what it does is take 2 moving averages of an index's Advance Decline line, and determines the distance between these 2 lines. In other words, it measures stock market breadth.
Unfortunately, Stockcharts.com does not have this indicator for the TSX, so I had to make up my own. In the chart above, I have highlighted only the areas where the signal line is below zero. These periods indicate times where there is additional risk involved in being invested in the TSX. The main point is that the line has just last week plunged below the zero line.
In this post, I have tried to look at the markets in several unique perspectives, using daily and weekly time frames. I hope it made sense. Thanks for visiting.
Saturday, November 3, 2007
In this post, there will be quite a few charts. Since in the previous post, we had a look at oil, let's see how oil stocks are doing, to start things off. The daily chart below is of an ETF that contains a basket of Canadian energy stocks. (The ticker symbol is XEG.to. There is another ETF that will allow you to short this index by a factor of 2. Its ticker symbol is HED.to.)
The yellow area is simply showing that this ETF is coming against some gap resistance. The next chart shows the TSX Composite Index. This index is highly oil driven, so it is not surprising to see this index bumping into some overhead resistance as well.
In the TSX chart above, I've also outlined some volume patterns. The next chart is a daily candle chart of XGD, the Canadian gold stocks ETF. There are a couple of things to note here. Firstly there is gap resistance as well in this chart, and there is another layer of resistance that stems from the previous high formed in April.
Furthermore, in the above XGD chart above, you can see that there is a large divergence forming on the Relative Strength technical indicator. Finally, I made a comment on the chart saying that this ETF has not been as strong as, say, GDX. This is because the Canadian Dollar is rising so rapidly.
The chart below shows the daily price action of gold stocks, as measured by the XAU, divided by the gold, as measured by GLD. In a healthy uptrend, we want to see gold stocks outperforming the actual metal. For the last month or so, this has not been happening.
In addition, there is a RSI price divergence apparent on this chart. And if you use your imagination, there is a head and shoulders pattern forming over the last 6 weeks.
So, overall, I feel that at this time there is a confluence of negative factors working against gold stocks. Gold has basically risen 12 weeks in a row, and no market, no matter how strong the fundamentals, can go up in a straight line.
Long term holders of precious metals can definitely ride this out, however. I feel that gold will be at over $1000.00 an ounce this time next year, and the USD Index could eventually go into the 40's, but it will never get there in one straight line.
Thursday, November 1, 2007
This chart contains a lot of information, so it may take some time to make sense of it. I would recommend clicking on the image for a larger view.
This chart utilizes the new indicator I mentioned in the previous post. I have outlined the overbought territory in red, and the oversold area in green. The accuracy of this indicator is enhanced when used in conjunction with the RSI. Besides that, the annotations are fairly self explanatory.
The other aspect that you may have noticed is that this Exchange Traded Fund is nearing a potential double top. This combined with the fact that the RSI and that the new indicator are both overbought as well, is not a bullish combination.
Now, I am very bullish on oil in the medium and long-term, but, that being said, I do think that prices may have gotten ahead of themselves, and a short-term correction may be due. I also think that the price of oil itself will certainly find round number resistance at the $100 dollar per barrel area, which it is near currently.
Like always, I have no way of predicting the future, but I hope that, at the very least, analysis such as this, can help put the odds in our favour. Thanks for visiting.