A VERY PROSPEROUS, RESOURCEFUL AND GOLDEN NEW YEAR
Dr. Clive RoffeyAll my analysis points to a major bull market in resource and precious metal stocks that should outperform equities in 2005. A friend of mine has detailed the extraordinary relationship of the moves on the gold price to the Fibonacci mathematical sequence. This form of analysis is his specialty. I must admit to being surprised, but when he went a step further and detailed the same Fibonaccl relationship for the Dow I was amazed. There is a definite relationship to Fibonacci but it does not appear to be regular. It can occur between tops and tops, tops and bottoms, and bottoms and bottoms. The analyst must search for these points, they do not jump out and hit you. I believe that if I have a divergence or grouped oscillator buy and it occurs at a Fibonacci point then it is further confirmation of the potential for trend reversal.
Bullion has pulled back to test the breakout level after its slice through the $430 resistance. As usual it has overdone the reaction, but has mapped out a classic flag pattern. The old stock market adage believes that the flag flies at half mast. This implies that the move into the flag will be repeated out of it. Thus I am looking for a rebound off the current levels. It will need a move above $435 to trigger the next upside move to at least $485 before moving well above $500 by the end of the year. This remains a major bull market in gold and silver.
The chart of silver is interesting. Over the past year it has had three high velocity moves, two down and one up. This is symptomatic of triangular patterns. Whereas the triangle ultimately maps out a sideways trading range the first three internal moves can be vicious. This is exactly the situation with the silver price. I am expecting some further volatility in this metal before it resumes a stable bull market trend.
The strength of the Rand to R5.56 to the $ was ridiculous. But as usual at the end of a euphoric market buying the Rand was a dead cert way to easy riches, until it turned and caught all the speculators with their trousers down. I have been warning that the Rand and the South African gold shares would have an almost vertical price catapult once the Rand strength ended. This has started.
Gold and silver stocks are superb buys on any stock price weakness such as that in play at the moment. Breathers are a very necessary part of bull markets. Prices do not keep moving for ever. Profit taking is a standard effect. But most of the chart prices have retraced back to major long term support levels that usually act as buying areas. In addition there are numerous buy divergence on the RSI and MACD oscillators that indicate a potential trend reversal in the near future.
My analysis of the Dow indicates that it is a large complex flat top that has been in place since 1999. All the gyrations of the past six years have been necessary to form this massive top as the beginning of the bear market correction to the huge 20 year bull trend. If the Dow fails to penetrate above the 11 100 level during the first quarter then I expect to see at least a 4000 point fall this year.
There certainly appears to be a relationship between the time frame movements of the Dow and the Fibonacci mathematical sequence. I do not believe that it can be used as a stand alone tool but in conjunction with oscillators and grouping it adds another dimension.
The $ gold price also has a Fibonacci time relationship. I find it extremely interesting to see that 144 days had elapsed right at the top of the run prior to the current correction. This correction has lasted 22 days so far and a turn at this point of time would be expected.
This is the Euro / Rand relationship. It is slightly different to the Dollar / Rand data. The long term trend of weakness on the Euro and strength on the chart is about to change into Rand weakness. This will significantly increase the price of gold in Rands and the earnings of the South African golds should benefit accordingly. This chart indicates a lot more upside for the Euro and weakness for the Rand
Whereas the Euro chart above is on the point of breakout the Dollar / Rand chart is only just starting to move. In both charts there are major buy divergences on the bottom oscillators and grouped buy signals on the oscillators in the top frames. This indicates further serious Rand weakness and is a very good sign for South African gold stocks.
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Dr. Clive Roffey
9 January 2005
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