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Gold Action #412Dr. Clive Roffey Back into harness after a month in windy Cape Town, and into a brand new investment year. Quite why we always review the coming year I do not know, but it appears to be a universal investment habit. So what does the rest of 2006 have in store for us? First and foremost is the Dow. This is, in my humble estimation, the most important chart for the coming year. The long term implications of this data will affect all global investment markets as well as the gold price for several years to come. After seven years of effective sideways flat movement the Dow is almost ready to make a directional decision. It needs a break above 11 500 for a new powerful bull market to kick in. But a drop under the 10 200 support would be potentially disastrous. These are the levels to watch as, after a seven year itch, the next trend will be long and strong (I rate about 5000 points), in which ever direction the breakout occurs. Second is the gold price. My Elliott wave data has been extremely accurate over the past two years as it continued to indicate a powerful upside potential, totally at loggerheads with more supposedly illustrious Elliot services that have been continually negative. The key to any gold market is NOT the gold price, but the gold stocks. Watch the gold stocks and they will help you to analyse the gold price. I discount any analysis of the gold price that fails to take into consideration the chart data on the gold shares. In this regard I continue to reiterate my oft stated contentious opinion that the JSE gold index and South African gold shares MUST move well above the previous peak of April 2002 before the wave III of this bull trend can be complete. Whilst they continue to dither well under this peak I will continue to rate them as a major buy for all portfolios. One of my major concerns for 2006 is the way in which euphoria has returned to the general equity markets. Sure the banks, retailers etc are making new highs. But none of the ancillary data is confirming the new share price highs. I thus have to rate the recent upsurge as an unstable situation until I see some positive data from the oscillators confirming the movement. There are some potentially large upside prospects in many penny stocks, especially the resource related ones. I have already given buy signals on most of these situations but there is still plenty of upside left in this area of the market. The Rand remains the stumbling block to many share price movements reaching their full potential. The recent blip under R6 was to my mind the final sell off in this market. All my data rates the Rand as a hugely overpriced currency. I must look for a much weaker currency going forward in the New Year. Relative strength has always been one of my key technical tools. I do not see the point in holding stocks that are under performing the general market, even if they are appreciating. It merely means that there are more profitable situations in other sectors. On that note I will be comparing all sectors and stocks this year against the JSE gold index and if the sector or stock is not out performing that index I will not be interested in it. I expect to see the gold and silver shares out perform their platinum counterparts and most other general equity sectors. So on that note let me wish you all a very Resourceful and Golden 2006.  The long term upside trend on the Dow remains intact. Since 1999 the index has traded sideways in a flat band that is ready to produce a breakout. The upside resistance is at 11 500. This is the critical level that must be broken to kick in a new long term bull trend. But there is also a strong downside potential based on the proximity of the long upward trend and the recent channel pattern of the past two years. The critical level for support is at 10 200. A move under that would be disastrous.  This is the chart of ASA the investment trust in New York holding mainly South African gold stocks. It has made a major upside breakout above the resistance that has been in place since 1990. In addition the blue relative strength is clearly outperforming the Dow, and should remain that way for some time. I continue to advise that gold stocks will out perform general equities on the world stage as well as on the JSE.  This is my updated Elliott Wave configuration. I had originally looked for a correction at around $530 to give the 7-8 minor correction. But the manner in which the gold price has pushed above this leads me to extend this data for the red 7-8 correction to occur at around $600 with the final kick through to 9 at around $685.  The long term picture of the $ gold price has its major trend intact and there is no sign of any sell divergence even though the price is into overbought territory. This is a monthly chart and reflects the long term data, not the short term trading situation. It indicates a lot further upside for the long term bull trend.  The Dollar / Rand chart is of extreme importance as it has a significant effect on the fortunes of the gold shares. It has been in a classic A-B-C correction since June in which the distance of the C wave is equal to that of the A wave. In addition there is a large buy divergence for the Dollar as the RSI has totally refused to confirm the recent strength of the Rand. I rate this as a major turning point for the Rand back into weakness.  The Rand price of gold is attacking its major bull market resistance. A break above R3450 will trigger a huge potential upside for the Rand price of gold. I have already published my data for the R3800, R4250 and R5400 targets on this chart. If you only wanted one good reason to buy gold shares this is for the gold stocks. This is a long term investment chart, not a trading situation. January 14,
2006 'Gold & Silver Penny Stocks' is the sister publication to 'Gold Action' and is produced by Dr. Clive Roffey; croffey@mweb.co.za
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