Keep your Finger on the "Buy"
Button
Contributed by Olaf Sztaba
NA-Marketletter
www.na-marketletter.com
May 24, 2004
INTRODUCTORY SUMMARY: After the completion of the first,
dynamic part of the bull market (Leg 1), gold has begun to correct.
The most likely format of correction is in the horizontal trading
range. The congestion zone will bring much-needed stabilization
and firm up already conquered territories. The correction (whatever
form it takes) should also prepare the ground for further advances,
which are inevitable in the light of the on-going secular and
cyclical bull market in gold.
GOLD NOW: The rally in bullion reached its climax in the
first few days of April and since then the yellow metal has been
in a corrective mode. On the way down, gold fell below the 50-day
moving average and violated its 200-day MA. While the 50-day
MA has turned around and is currently trading downside, the 200-day
MA still has a bullish alignment. Moreover, the short-term MACD
has produced a buy signal that should help in the short-term.
Chart courtesy
of Stockcharts.com
At the moment, gold has consolidated
around the $380 zone but is beginning to move back to its 200-day
MA, currently located at $394. This level coincides with a strong
resistance area placed just above the recent price action. Expect
gold to experience turbulence as the yellow metal approaches
its 50- and 200-day MAs, as well as strong resistance around
the $390-395 zone.
In sum, gold is staging a come-back to its 50- and 200-day
MAs. The yellow metal, however, may require further corrective
action before it is ready to stage an assault on its previous
high.
AN INTERMEDIATE-TERM VIEW: The beginnings were
not easy. The first leg of the bull market (Leg 1) in gold was
accompanied by laughter and disbelief in the investment community.
Our market call regarding gold back then was questioned as over-optimistic.
(See our "Conversations with Gold" part 1,
part 2 and part 3).
The up-trend in gold which followed not only disappointed the
bears, but also shocked the bulls, who were unprepared for such
a banquet. Please note that the bulls' stampede took place almost
entirely above the 40-week moving average, which had provided
support for the metal on the way to the top. The first sign that
gold is on the verge of a deeper correction was a move below
its 40-week MA. The major intermediate-term correction began
its work.
Chart courtesy of Stockcharts.com
There is no drama and no
need whatsoever to abandon gold. It is just a much-needed correction,
which clears the air before the bulls hit again.
A SECULAR (multi-year) PICTURE:
In the big picture, gold has done nothing yet. All it has done
so far is to clear the house of debris and start building a foundation
for the future. We believe that with a multi-year perspective,
the current price of gold will look like a prime joke. You doubt
it? Do you see disbelief? That's nothing abnormal or unique.
It is the normal reaction of the street at the beginning of each
secular bull market.
With each serious decline in the price of gold, typical psychological
factors are at work. There is a fear of the return of the bear
market. There is doubt about the on-going bull market. This is
nothing new. Negative emotions are what every long-term bull
market needs to be sustainable. (Negative emotions feed the bull
market and keep it strong and healthy for the long run.) Those
who panic, sell, feeding the raging bulls all the way to the
top. Don't be one of them. Stay with the trend. Keep in mind
that this is a secular bull market actually just the beginning.
In sum, gold is in a bullish and secular cycle. Don't let
the bears scare you off. Keep your finger on the "buy"
button and do not be afraid to press it as the gold stocks' supermarket
discounts them one by one.
For individual gold stocks recommendations sign in for a free
trial at www.na-marketletter.com
Contributed by Olaf Sztaba
Email: osztaba@na-marketletter.com
Website: www.na-marketletter.com
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