Saturday, March 1, 2008

Major Breakouts and Breakdowns

This past week was another satisfying one for commodity bulls and US Dollar bears. Gold rose another $27.00 an ounce to reach yet another all time high, silver experienced a blistering rally this week of 10.42%, and even the price of nickel was up about 14% between the span of 2 days.

At the same time, the US dollar melted down again, breaking through major support into what is now literally uncharted territory. Let's have a look first at the damage:

I cannot see any reason not to be short US dollars at this time. There is absolutely no support down below, and no telling when the free-fall will hit bottom. Referring to the RSI, which is a much less sensitive 21 day RSI, one can see that the Dollar is not oversold at this time as well.

Watching the US dollar fall apart last week in real time, and knowing that other short sellers like myself were swarming this currency, was very exciting. The amount of money that could be made in this market is amazing.

Anyway, a US Dollar defeat is always a Euro victory as shown in the following chart:

As you can observe from the above point and figure chart of the Euro ETF, FXE, a major quadruple top breakout occurred this week. This chart goes back to about September 2007 and has a 3 box reversal.

If you prefer to observe the Euro using a traditional candlestick chart, here is a weekly chart of the Euro index:

The main points are that the trend is up, so there is no sense in fighting that, and that the Euro has decisively cleared major round number resistance.

Another sector that also cleared an important milestone this week was crude oil. Over the past few months, black gold was struggling to break through the psychologically important $100.00 a barrel area. This struggle ended this week, with victory going to the bulls:

Over the past few weeks, I have been reading books, and watching documentaries that outline a bullish case for Crude Oil. Most of these books are on peak oil, and I am fully convinced that this theory is sound. I will not go into any details right now, but suffice it to say that the fundamentals and technicals are both extremely positive right now. Two ways to participate in this bull market are through USO or

Presently, oil looks more bullish to me than gold or silver. If you refer to a weekly chart of gold stocks, you will see that there was no bullish breakout from its trading range at this time. Also, gold will correct one of these days, as it is more overbought than oil. I have no idea when it will correct, and betting against gold would be unwise, but perhaps it will bounce down from $1,000 an ounce resistance.

So, bottom line is Dollar is bearish, Gold and Silver are neutral, and the Euro and Oil are bullish, in my opinion anyway. Thanks for visiting.


Rich Cashman said...

Boy is this going to be an exciting week. I'm really wondering when we're going to see the juniors begin to simmer as a result of the this psychological hurdle.

Danny Merkel said...

Hi there,

I know that you are not the only person asking that question. Unfortunately, I have never been involved with juniors.

That's not to say that getting involved in juniors is in anyway unwise. I just don't understand them. They are difficult to analyze technically, and I was never very good at fundamental analysis of stocks.

The third hour of last weekend's Jim Puplava's Financial Sense News Hour radio podcast I think will shed some light on that question though.

By the way, if anybody sees any interesting chart developments this week, please post a comment.