Gold, Crude Oil, and the US Dollar

For this past week, gold lost $35.60, and gold stocks, as measured by GDX, lost 5.10%. In this post, I will show more evidence that commodities and gold stocks are in corrective mode.

In last week's post, I suggested that gold priced in Canadian Dollars was testing a key level of resistance. Last week's price action has proven that it has failed quite miserably at this test. The chart below illustrates this point.


The candlestick formation that formed at this level of resistance is also noteworthy. The combination is what is known as a dark cloud cover. Steve Nison, author of Japanese Candlestick Charting Techniques, says the following about this pattern:

The rationale behind this bearish pattern is readily explained. The market is in an uptrend. A strong white candlestick is followed by a gap higher on the next session's opening. Thus far, the bulls are in complete control. But then no continuation of the rally occurs! In fact, the market closes at or near the lows of the day moving well within the prior day's real body. In such a scenario, the longs will have second thoughts about their position.

But it is not only Canadian Gold that has failed at a key area of resistance, but Crude Oil too. I showed this following chart several posts ago, but I thought it would be good to have an update on the oil situation:


This chart shows a weekly perspective on the Oil ETF, USO. In my opinion, the price has been struggling at the resistance area highlighted. Furthermore, the chart put in a large red candle for this week, with no lower shadow, on decent volume. There is nothing bullish about that sort of combination.

In Friday's edition of John Murphy's Market Message, John Murphy pointed out that the CRB and GSCI commodity indexes were also at resistance. This makes sense, since these indexes are heavily weighted in crude oil.

Finally, let's have a look at a daily chart of the US Dollar:


Ever since the US Dollar broke through the key support area of 80, it has been getting creamed very badly. However, it seems that the US Dollar bears may take a bit of break for the next couple of weeks as shown by some of the bullish developments in the above chart.

Firstly, the USD put in a dragonfly doji right on the 75 mark. The fact that the bulls were able to defeat the bears at this level is encouraging. In addition, the MACD Histogram has given us a buy signal for the first time in months. If the US Dollar begins to rally, it will certainly bring commodity prices down. If you agree or disagree with this analysis please leave a comment. Thanks for visiting.

For additional analysis, I recommend the following 2 blogs:

Canadian Point and Figures
Headline Charts