The Technical Analysis Continues

I think it has been 3 weeks since there was a post to this site. The reason for this is that I have moved into a new apartment, and it took some time to get settled in, and to get an internet connection reestablished. Going forward, there will be posts every weekend on this site, at a very minimum.

I left off saying in the previous post that the bearish momentum was being lost, and it looked like demand was starting exceed supply in the gold stocks sector. Here is a daily chart of the HUI that I found interesting:


There were a few posts in December that discussed a potential bearish head and shoulders pattern forming in the gold stocks charts. The above chart shows that interpretation never did come to fruition. However, when the HUI started forming hammers right at a strong support area, I think there was ample warning to cover any short positions, and consider possibly going long.

Furthermore, when gold broke out of the triangle mentioned in the previous post, you knew that going long was the better bet. To be honest though, I did not anticipate such a quick rally in gold. The fact that the triangle unfolded just like everybody suspected it would surprised me, since gold rarely does what everybody is thinking it will, which is why I am always leery of breakouts.

The only area that I played since the last post was the Canadian Energy Sector. I bought shares of an ETF that does twice the daily performance of this sector. The ticker symbol is HEU.to. Here is a daily chart of it:


There are so many great technical patterns that formed in the above chart. I am sure if you just click on the chart, you will see most of them, but what I felt was the strongest piece of evidence, evidence that the bulls were in control of this market, was the island reversal that formed in December. Your cue to exit was the red resistance area and overbought condition formed near the beginning of January.

In terms of where the markets are going to head in the next week, let's have a look at a daily chart of the TSX:


As you can see, the TSX is presently being compressed into an area defined by clear support and resistance. A break below the blue line would be very bearish, but a break above the red zone would be quite bullish. The odds favour a breakout to the upside, in my opinion anyway.

Finally, I think some of the impetus for a TSX breakout will be a resurgence of a beaten down banking sector. Although I never talk about financial stocks on this site, I still think this following chart is interesting:


The above chart is a weekly candle chart of an ETF that follows the Canadian Financial Sector. Although the TSX is heavily commodity driven, in order for the TSX to muster enough strength for a rally, it will still need help from this sector. And by the looks of it, that help might be in the cards for the next couple weeks. I am predicting that this ETF will hold the green support area indicated, which will help the TSX bounce off its support area.

From Bearish to Neutral

Gold stocks started the week continuing last week's bearish momentum, but that momentum was lost toward the end of the week. Both Canadian and American gold stocks are retesting the breakdown point that occurred on Monday. This chart, showing Canadian Gold stocks, shows what I mean:


The above chart is a daily chart of an ETF that does twice the performance of the Canadian Gold Stocks Index, and the ticker symbol is HGU.to. As you can see, there was a quadruple bottom breakdown that occurred on Monday, which seemed to me to be quite bearish at the time. Although gold stock rebounded sharply on Friday, this gap area is going to be resistance, in my opinion.

The next chart is a daily chart of GLD. Obviously, there is a triangle forming, and many analysts see this as a bullish development, and that is a definite possibility. My advice for trading this is do not jump the gun on this formation. Gold and gold stocks are notorious for failed breakouts.


My options expired yesterday, so I probably won't be looking at the charts all that much next week, and I am sure most people have better things to do at this time of year than to technically analyze gold stocks! Hope everyone has a good Christmas.

Bad News for Gold Stocks

Everyday I examine 81 charts which are related to the gold market. Besides the 3 posted already, here are 2 more charts that caught my eye this week. First we have a daily chart of GDX:


I mentioned in another post that I thought gold stocks were forming a bearish head and shoulders pattern. This pattern is becoming more mature, and, in my view, has been activated. The downside target is what is labeled "Target 1" in the above chart.

Target 2 refers to the unfilled gap left from the beginning of September. I think that GDX would not descend past this area of support.

The next chart shows a weekly chart of GDX:


The main point of focus should be on the large red candle that occurred on heavy volume last week. There is absolutely nothing bullish about that candle. This is another reason that gold stocks look bad right now.

Technical Analysis of Currencies

Many interesting developments occurred for this past week, so this week's posts will be more in depth than usual. Let's start off by looking at the Euro versus US Dollar. This currency pair broke down quite badly this week. In fact, the Euro did not experience this level of selling in one day since 2004. Here is a point and figure chart that outlines the damage:


This chart has 0.5 box size and a 3 point reversal. It goes back until the end of July 2007. As you can see in the above chart, the Euro has formed a triple bottom sell signal, which, of course, is very bearish. This shows that the bulls have lost a key battle at an important support zone, and that the bears are now in control.

The above chart also shows a triple top buy signal that occurred back in September. Because this pattern is the opposite of the pattern just mentioned above, you may want to check out this article.


A defeat for the Euro must mean a victory for the US Dollar, and the following daily chart shows that was in fact the case:


If you observe the above chart, you will see that the bulls are in control of the US Dollar right now. This is evidenced by the extremely tall white candle formed on Friday, and by the MACD Histogram, which is showing that the short term trend is up.

On the November 17th post, I suggested that US Dollar strength was in the pipeline. On December 1st, I showed that the US Dollar Index was putting in some bullish candles, and that the bulls won a battle at the 75 mark. It would be worth checking out these posts, since the lessons learned will inevitably be applicable to some market situation at some point in the future.

Here is final chart showing another perspective of the US Dollar. It is a weekly chart, and the indicator on the bottom is the ADX indicator:


I showed a similar chart using the ADX Indicator in this article. However, my predictions turned out to be totally wrong, and the indicator gave a false signal. One would think that after this failure, I would be dubious of using this indicator again, but the difference here is that the above chart is a weekly chart, and not a daily.

The way signals are generated is when the thin blue line crosses above 35. This indicates that the trend is near exhaustion, and that a period of rest is needed. I feel that this method of using this technical indicator is more reliable than the daily version.

There will be another post to come later on today. Thanks for visiting.