CHARTWORKS - APRIL 2, 2008
Time Windows
Technical observations of RossClark@shaw.ca
Bob Hoye
Institutional Advisors
Apr 7, 2008
US Dollar/Euro/Gold
As pointed out in the weeks
leading up to the recent top in the precious metals a multitude
of intermarket relationships and our indicators were producing
signals that called for a significant downside correction. Gold
has now retraced 62% of the rally from November and there is
a bullish divergence in the XAU vs Gold (but not in the HUI,
GDM or XGD.TO). However, the weight of the evidence points
to a more sustainable low further down the road.
Gold/Silver Ratio
Once again, the GSR produced
a warning signal leading up to an important downside reversal
in the mining stocks. The RSI(14) reading of 89 was followed
by high in the mining indexes within seven trading days. This
RSI reading has now been accurate in 8 of 8 instances over the
past four decades. Subsequent selloffs in the stocks generally
result in an important low twenty-three days following the high
close. This produces a targeted time window of April 17th.
Relationship with the US Dollar
The US Dollar Index entered
a weekly downside capitulation mode last week while the Euro
produced weekly upside exhaustion alerts. Although overextended,
a price reversal in the currencies can take a few weeks to transpire.
The previous occurrences (five in this decade and two in the
second half of the 1980's) did not reverse until a weekly
Sequential Buy Setup had been generated in the Dollar. It would
take another two weeks of steady to lower closes to create a
signal (73.03 this week and 71.67 next week). While a
Sequential is not necessary, it would provide an even better
catalyst for upside action. Independent of the Sequential we
must note that all seven capitulations resulted in a correction
back to the 20-week exponential moving average within eight to
ten weeks of the initial alert. This provides a time frame
extending out from the middle of May.
While capitulations are reasonably
rare, each rally from an oversold condition in the Dollar
back to the 20-week moving average when coupled with an RSI(14)
reading crossing over 44 has produced a tradable interim low
in gold and the senior mining stocks.
Commitment of Traders
The net long non-commercial
positions have declined by 35k and the net short commercial positions
by 46k. A reduction of another 15k or more would put the market
in a much healthier position. The RSI readings of the COT data
are back to neutral readings, but still shy of the levels we
would view as lower risk by triggering a buy signal in our model.
(The last signal occurred the week of June 29th at $650).
Retracement of preceding rally
Major price corrections in
gold have a tendency to retrace 55% of the previous rally. We
can define the rally as having occurred from the most recent
pullback in November 2007 ($773), June 2007 ($641) or the low
of $542 in June 2006. This provides targeted support at $890,
$818 and $763.
###
-Bob Hoye
Institutional Advisors
email: bobhoye@institutionaladvisors.com
website: www.institutionaladvisors.com
CHARTWORKS - APRIL 2, 2008
Hoye Archives
The opinions
in this report are solely those of the author. The information
herein was obtained from various sources; however we do not guarantee
its accuracy or completeness. This research report is prepared
for general circulation and is circulated for general information
only. It does not have regard to the specific investment objectives,
financial situation and the particular needs of any specific person
who may receive this report. Investors should seek financial advice
regarding the appropriateness of investing in any securities or
investment strategies discussed or recommended in this report
and should understand that statements regarding future prospects
may not be realized.
Investors should note that income from such
securities, if any, may fluctuate and that each security's price
or value may rise or fall. Accordingly, investors may receive
back less than originally invested. Past performance is not necessarily
a guide to future performance. Neither the information nor any opinion expressed constitutes
an offer to buy or sell any securities or options or futures contracts.
Foreign currency rates of exchange may adversely affect the value,
price or income of any security or related investment mentioned
in this report. In addition, investors in securities such as ADRs,
whose values are influenced by the currency of the underlying
security, effectively assume currency risk. Moreover, from time to time, members of the Institutional Advisors team may be long or short positions discussed in our publications.
321gold Ltd
|