The US Dollar, Agriculture Charts, and New ETFs

The above chart is a daily chart of the US Dollar Index. As you can see, the Dollar recently broke out of a bullish triangle formation and is now trending up. This fact has put downward pressure on both gold and silver, and I think there is a good chance that this will continue happening for at least the short term.

One commodity that is catching my eye, and does not seem to have been affected by dollar strength is agriculture. Like oil and gold, the fundamentals for grains appear very strong right now. I can't go into all the reasons why here, but I will at least show a chart of this sector:



The above chart shows an index that combines the price of soybeans, corn, and wheat. The main points are that the trend is up, which is key, and also that a bullish breakout has just occurred.

There are several ETFs that more or less track this index. I have purchased one that trades on the TSX, and the ticker is HAU.to. What is interesting about this particular ETF is that it does twice the daily performance of the underlying index. There are other ETFs that track this index. Two tickers that I know are DBA, and JJG.

Finally, here is a longer term chart of the same chart posted above. It goes back about 15 years:


In my view, grain prices have been falling for decades, and are only now emerging from a deep bear market. Unlike gold or oil, which I would say are in perhaps the third inning of a major bull market, grains seem to be entering the first inning of a major long term bull market.

Along with silver, gold, and copper, this is one commodity I plan on holding for at least the next ten years.

The Carry Trade, The TSX, and Oil Stocks

If yesterday's market activity could not compel me to write for this blog, then I don't think anything would. Besides the obvious headlines you have probably already read regarding Crude Oil and the Dow Jones, there are many other interesting developments that I feel are going on behind the scenes that are just as significant.

In the previous post that I wrote, I mentioned that the VIX was bouncing off support, and that this would negatively affect the TSX. So far, the VIX has bounced quite strongly, but this has not yet had a major effect on the index, although I think it will shortly.

Another theme that I touched on was the relationship between the TSX and the Japanese Yen. Here is an update of the same chart I posted last time:


As you can see, the Yen is still holding support. I feel that if the Yen bounces of this support area, it will negatively affect the TSX.

To look at this relationship at another angle, I sometimes like to look at the Yen/Euro cross versus the TSX. This is what this next chart does:


Hopefully, if you glance at the above chart, you will see a mirror image, even though the two charts are measuring completely different markets. What we have is the Yen/Euro cross on the top panel, and the TSX on the bottom panel. If you are unfamiliar with the rationale of the above chart, I would recommend checking out this article.

While I was on holidays, I spent quite a bit of time trying to develop new techniques for analyzing the markets. One technique that I developed came to me while I was reading an article from HeadlineCharts:

What we have in the above chart is another candle chart of the TSX, and a ten day moving average of the inverted put/call ratio as a solid line layered on top. I realize that the put/call ratio is not measuring option activity for the TSX, but, nonetheless, there seems to be a reasonably tight correlation between the two.

The way this chart would work is to look for divergences between the two graphs. It seems that there is bearish divergence building for the TSX presently.

The only sector keeping the TSX afloat right now is the energy sector. But, like an engine running one just a few cylinders, a market deriving strength on just a few sectors is likely to stall. What I found bizarre yesterday was how poorly energy stocks did considering how strongly crude oil rose.

In the last post, I showed a chart of stock that had caught my eye, Petro Canada. Here is an update on that chart:


The above chart shows Petro Canada, ticker symbol PCZ on the NYSE. I felt that this stock made an extremely rare and bearish candle formation as outlined in my previous post. What I find interesting now is that yet another shooting star was put in on Friday. Furthermore, I find it bearish that this stock was only able to rally by 3 cents a share while crude oil rose by more than ten dollars a barrel yesterday.

Basically, I feel extremely bullish on crude oil for the long term. I have read about half a dozen books on the subject of peak oil, and fully believe the arguments that are made. However, as a technical analyst, I feel bearish on oil stocks right now for the short term.

Anyway, I know I have not posted much about gold recently. This is because I am not getting any decisive signals on the market, and I don't want to make forecasts just for the sake of making forecasts.

I will continue writing posts every weekend from now on. Thanks to those who wrote comments or emails.

The Yen, Vix, and the Gold/Oil Ratio

I thought it would be a good idea to a have a mid-vacation update. Here are five charts that I found interesting this week:

1)2)
3)
4)5)

Please click on the charts in order to read the annotations. Thanks for looking, and have a profitable week.

Monthly, Weekly and Daily Gold Charts

For this past week, the price of gold lost about $32.00 an ounce, and gold stocks, as measured by the XAU lost another 4% for the week. When gold goes through these normal corrections, I usually refer to the monthly charts, so that I do not lose sight of the larger picture. The chart below is monthly chart of the XAU:


The above chart goes back until 1985, and each candle represents one month of price action. The main point of the above chart that I would like to make is that gold stocks are in a massive bull market, and that this correction we are going through has not even made a dent. Secondly, the XAU is close to support at the 160 level, which previously was resistance.

The next chart is a weekly chart of an ETF that follows a basket of large gold stocks. The ticker symbol is GDX:

The main point in the above chart is that GDX is at gap support. This gap support was previously the resistance that contained gold stocks during its prolonged trading range. In fact, the entire year long trading range that gold stocks went through was defined by gaps.

Up next we have a daily chart of GDX:


I showed the above chart in my previous post. In the annotations of that chart, I said that if GDX descended to the green support area and made a hammer, I would cover my hedge. This is what in fact unfolded this week, so, thus, I am no longer hedged.

The evidence is now building for a bullish case for gold, however, it is important to not dive in head first into this market. I will slowly scale back into gold stocks depending on how the evidence looks.

One more more piece of evidence in favour of gold stocks is a chart that divides the price of gold by the HUI gold stocks index:

The above chart helps spot when gold stocks are relatively undervalued to the price of gold bullion. I would say that this development is a positive for gold stocks.

The bottom line is that it probably is a poor time to be short gold stocks right now. I am not 100% convinced that the bottom is in, and stand ready with cash to be redeployed to the long side.

Unfortunately, I have decided to take a break from this blog for at least several months. Good luck trading in the meantime.


-Danny

DannyMerkel@hotmail.com