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Follow Up to the CliffhangerRyan Wilday Last week I wrote an article discussing that the financial markets, including the US Dollar and gold, were at critical junctures. Gold was in a particularly precarious situation as it headed for its critical 65 week average. To a certain degree, not much has changed yet. However, I believe there are some trading opportunities to be had. Also, I will discuss some other important charts where the indices in these charts may be going. First let us look at the Dollar:
The dollar rallied strongly last week. It reacted to the channel resistance I noted last week by breaking out and heading for 90. Now, what it does at 90-90.5 is critical. My sense is that it will break through and head for 92 but, I believe that if is not up on Monday than I am wrong. Now for Gold:
Being a gold investor I am still nervous. Gold was very tentative to leap from the 65 -week average, therefore I think the chances are we are heading for the May lows. The only caveat is that Friday was good day for Gold, it was strong though the dollar was up at the end of the day. Unless the dollar reverses at this point, I believe Gold is going down. I believe I will know in the first two days of the week. That being said, I continue to look to add to my bullion stocks and gold shares but I am waiting for lower prices. I still believe in the long term bull in gold. I think gold will not go lower than 350 due to monetary debasement, so the risk to reward potential is acceptable to me. Most of the damage has been done. Again though, from a short-term perspective I think we are in for more pain. I do not advocate selling gold or gold shares at this point. I will be looking to accumulate sparingly. I may protect my gold share positions with put options after rallies to limit the downside. But if gold regains 400 again, I will be much more bullish. For the equities market, I'm going to look at the NASDAQ and the DOW:
The NASDAQ reached for its support line than reversed. Interestingly, this is approx. the point of the 65 week average. I now believe it is going to at least 1930. If it breaks this level, it will head for 1990 before the continuation of this slow downward grind. Due to the distribution I see in this index I believe we will see acceleration in this trend, though not quite yet.
Look at how the Dow reversed before reaching its low for the year. Also notice how the MACD seems to be strengthening. The DOW is going to 10250 which, if broken, the next stop is 10500. Watch carefully what it does at 10500! So in short there are some opportunities before us. If you are only long term in perspective, Gold and gold shares are at a point to accumulate.. However, consider the risks of a further Dollar rally. The general equities indices continue to show they are in a subtle downward stroll though it may speed up or reverse. So, for the equities market it remains an ultra-short term market for options players only. I don't recommend buying equities given my bias that the indices will start to move aggressively downward at some point. Here are some other charts of interest:
Here is copper, climbing off a double bottom just below 115, and forming an ascending triangle. Will it break out over 131? If so, we should see 135 or 140 in the future.
We all are aware of oil's upward charge. Oil is now poised to hit 45.50 to 46 before softening a bit. I'm going to stick my nose out as say that we will see 58 by next year based on long term price movements. Time will tell!
Inco, a major producer of Nickel, seems to be building a reverse head and shoulders. I expect a break through 36 based on the movements of base metals.
Was silver's fall due to deflation, lack of demand from China, or just a reaction to the speculative mini bubble? Silver has landed nicely in lower Fibonacci support zone and has found resistance at the upper line. $6 should act as strong solid support, but if not, I believe we've seen the bottom. Silver simply got ahead of itself, and is working off the technical weakness before another charge northward. However I think it will be a while before we see over $8 again. Speaking of China:
Not that the China Fund gives us all we need to know about China, I think it is worth watching since it contains many important China stocks. Notice how volume in this correction is dropping off. The prices have also pierced the resistance line, though tentatively. This is one worth watching. We could see this one round out a nice base. This is a closed end fund so it is based on demand rather than NAV. I think the recent panic regarding China was premature. At some point China will have to go through a winter, but I believe the party is just starting. Happy trading! All charts
courtesy of www.stockcharts.com The preceeding article was written with academic intentions. Therefore the opinion of the author is not to be construed as advice to buy or sell particular securities or investment vehicles. Investing in the financial markets can be very risky therefore decisions should not (unless you are being contrary here too!) be made without the advice of a certified financial planner. The author of this article shall not be held responsible for losses incurred due to action taken based upon the reading of this article. Ryan Wilday
and Jason Berryhill are the coauthors of the Lake Effect Forecast.
Lake Effect Forecast is an investment newsletter with an expected
launch date of Nov, 1, 2004. The Lake Effect Forecast will take
interest in the general global markets with a bent toward investing
in resources including precious and base metals, and energy.
Watch for more to come! |
