Dr. Clive Roffey
One of the most interesting events of the past few months occurred almost un-noticed on the JSE this week. The bond rate for the R153 increased sharply from 7.4% up to just above 8%. South Africa is still in the Dark Ages in terms of publishing bond movement. We still quote the interest rate whilst nearly all other major bond markets quote the face value of the bond. As interest rates rise the actual face value of the bond falls. A falling price indicates sellers. The bottom line is that bonds were being sold. Of itself this is not an unusual event. But the Rand weakened against the Dollar by almost the same percentage at the exact same time as the bond weakness. The Rand went from R5.74 to touch R6.15 in parallel with the bond rate increase. A weakening Rand indicates sellers switching out of the local currency into dollars. Couple the two together and one sees that bonds were sold and currency changed into Dollars. This implies that the funk money that deluged the South African financial markets as a result of the huge interest rate differentials is starting to move out. This implies a serious re-evaluation of the South African financial market.
Whereas this was, in my opinion, the event of the week, there was a major breakout on all the Rand charts that I have been hammering for the past month. The Rand / Dollar, Rand / Euro as well as against Sterling, Yen and the Swiss Franc all broke through major trends and resistances. I reiterate that I expect the Rand to move from being one of the strongest currencies in the world in which it out performed all the leading global units, to being one of the weakest.
But the biggest chart break of the week was undoubtedly the push by the Rand price of gold above the critical R2580 an ounce level. This shot up to touch R2700. This break indicates an end to the three year bear market in the Rand price of gold and triggers a near term count to at least R3100. This is well above the Durban Deep break even of R2920.
All the gold shares reversed off their bases that had been forming for the past six months and to which I have drawn your attention on numerous occasions. This movement, like that of the Rand price of gold, has broken several critical resistance levels and indicates that the bear market that started in April 2002 is over. I will again place on record that a resumption of the major bull trend MUST take the share prices to well above their previous highs made in April 2002. And that includes Durban Deep!!
All the platinum stocks are ready to break above significant resistance levels and also move into substantial new bull trends.
The recent push on the Dow Industrial Average to touch 11 000 has completed a massive, and I mean MASSIVE, double top pattern going back to 1998. This huge top has, in my opinion, a downside count to 4900. I only expect to see this sell off target level in three years time. But the major market push is into a serious long term bear market. I do not like the look of this data. Such a fall on the Dow will drag all the global markets with it and send investors scurrying away from paper assets. On this subject go and take a look at the gold price against all the leading currencies. I have long stated that it is essential for precious metal investors to watch bullion's performance not only in terms of the dollar but also all the other leading global currencies. Gold is out performing all the major currencies. This is an indication of a revaluation of gold as a monetary item. The world is changing, and fast. I have for the past 18 months detailed that my upside target was for an oil price in excess of $70 a barrel. This has now become the norm. Inflation is upon us and no amount of Greenspan-ing will be able to fix it. Get out of general equities and ensure that you are resource and gold orientated in your portfolios.
I rate the Dow Industrial Average as the most dangerous and vulnerable chart in the book. The recent rally that attempted to break above the critical 11 00 resistance has failed. The upside movement has formed a MASSIVE double top pattern with the previous plateau of 1998-2001. There are classic sell divergences on both the tops of the double top pattern in which the oscillator has refused to confirm the upward moves. In Elliott wave terms this completes the major A wave down and the B wave rally. Still to come is the unfortunately devastating C wave sell off. My downside target for the full C wave sell off is back to 4900. Obviously this will not be a single collapsing move and there will be some serious rallies along the way. But I would not be looking for serious investment in global equities until this target has been achieved.
A similar picture emerges for the broader based S&P 500. The B wave top has a very clear divergence in which the oscillator has completely refused to mirror the new highs of the index. This is extremely dangerous territory.
In the last issue I detailed the extreme importance of the R2580 resistance level on the Rand price of gold. I have illustrated the triangular pattern on many occasions. Last week the price not only broke above the critical R2580 level but shot right through to the R2700 mark. This is a MAJOR upside breakout. It has enormous implications for all the South African gold stocks and Durban Deep in particular. Both Goldfields and Harmony have already reacted with large price surges. Durban Deep's share price still reflects the negativity that was generated around this stock. But if my upside target of R3100 is reached within the next six months, as I expect, then Durban Deep will be making group profits and will go down in stock market history as one of the fastest moving recovery stocks ever!!
The Dollar/Rand data is attempting to break upside above the major three year downtrend and also the more powerful immediate seven times tested red trend line. It will need a break above R 6.20 to the $. But once this is achieved it will signal the end to the strength of the currency and the beginning of a major period of currency weakness that can only be good for gold stocks.
For FREE trial data contact :-
Dr. Clive Roffey
info@utm.co.za
www.charts.co.za
www.shareaction.co.za
21 March 2005
Email this Article to a Friend 
Printer Friendly Version
