Dr. Clive Roffey
The SA Government's announcement that it will probably agree to the 1Billion dollar loan to Zimbabwe is another tacit acceptance of events in that country. It does not matter what theoretical strings are attached to this deal it is unlikely to ever be repaid. Quite frankly charity begins at home and the politicians should stick to their local promises and put this money to far better use in more housing or AIDS research for still underprivileged South Africans. Mugabe has ripped off his country and people and is reputed to have more than 1 billion dollars in overseas accounts. Let him bring back his stolen assets. It is heartening to see such vociferous opposition by the opposition parties to this proposed loan. How can you give more sustenance to a tyrant who spends multi millions on a party for anniversary celebrations while his people starve? I wonder how the people of South Africa would vote if a referendum were to be held? If the Government is supposedly the voice of the people, as they keep telling us, then they should listen to the people and their overwhelming opposition to this loan. That is my first gripe off my chest, now for the second one.
Last week a globally read financial website had an article in which analysis was presented relating to the proposed strike in the gold mines as the unions had obtained a certificate for the strike as a legal entity. The analysis directly related the 1987 fall in the JSE Gold index from 2400 to 1400 in a few weeks to the last strike that occurred in the gold mining industry of that year. It was deduced that such a gold share collapse could again occur if the proposed strike goes ahead. This is the biggest load of analytical rubbish that I have ever read. It unfortunately shows a total lack of research of that period.
Sure the JSE Gold index fell from 2400 to 1400 in late 1987 but this was long after the strike. But what was glaringly omitted from the article was the fact the WHOLE MARKET crashed, not just the gold index. Banks, retailers, diamonds, tobacco, financials, industrials, ALL collapsed. October 23rd was the start of the crash in the whole market. The article's attempt to relate the crash in gold stocks to the strike is effectively falsifying history.
The true facts are that the whole market collapsed from October 23rd 1987 and this had nothing whatsoever to do with the gold strike of that year.
I continue to be concerned with the progress of global equity markets. There is an unabated sense of euphoria about the recent market highs. But there is strong evidence that the last couple of months have been mapping out a serious Irregular Top in Elliott Wave analysis. This move apparently takes prices through to new highs and sucks investors into a false sense of well being that a new bull trend has emerged. Nothing could be further from reality. The Irregular Top pattern is one of the most dangerous chart formations. It suddenly turns and falls in what is known as the 'Killer C wave' sell off. I am classifying the new highs on most global indexes and many of the stocks on the JSE as an Irregular Top pattern that can suddenly turn into a sharp wipe out phase. I rate global equity markets as extremely dangerous.
Meanwhile the gold price is moving again and platinum has broken upside out of its triangular pattern to trade above $900. This is extremely bullish data for precious metals. In addition I am classifying the recent correction in gold shares as a minor breather in a continuing bull market and am looking for the gold stocks to move to new highs. The resource stocks keep on moving and I expect to see continued new highs across the whole of the resource area. The Rand has had a minor bout of strength on the back of dollar weakness and increase in South Africa's investment rating. But I am not looking for a much stronger Rand and regard the recent strength as a minor breather in a longer term bear trend.
The JSE Gold index remains inside the downtrend line. It is this trend that is causing the majority of analysts to look for further downside in the index. Popular forecasts range from 1300 to 1100 and there is even one analysis that postulates that a fall to 760 could occur. These analysts are failing to take cognizance of the major buy divergence that has occurred between the index and its RSI. This is a major trend reversal signal. Thus whilst many analysts continue to look at the recent upmove as a bear market rally I remain convinced that we have seen the bottom of this gold market on the JSE and have already moved into a new bull trend that will eventually take the index well above its previous April 2002 peak.
My analysis details that we have already seen the bottom of the JSE Gold index and that the recent correction is the right shoulder of a serious reverse head and shoulders pattern that signals a further UPSIDE move out of the pattern. Far from looking for 1300 or 1100 on the index I am looking for 2300 by the end of this year. I continue to analyse this data as extremely bullish for gold stocks, despite the recent minor correction.
I regard this chart as extremely important and critical. The Brent Oil price has steadily been forming new highs for the past year and has mapped out what appears to be a rising wedge. But this pattern can also, although not usually, be a rising triangle. The two patterns have totally opposite effects. The rising wedge is the most dangerous pattern in the market as it leads to a full price collapse back to the start of the wedge in one third of the time taken to form the wedge. The rising triangle has the exact opposite result. It leads to a sudden price surge to almost vertical new highs. So which pattern is it??????
The key is in the RSI in the bottom frame. Whilst the wedge/triangle has been forming it has been refusing to confirm the new price highs. This is normally a negative signal. But the real focus needs to be placed on the trendline across the tops of the RSI. If this breaks to the upside it will negate the divergence and signal a serious upside breakout. At this point of time my analysis favours the rising triangle and the upside breakout. But a failure by the RSI to break upside will suddenly change the analysis.
The key to the gold market lies in Silver. Platinum has already broken above its critical resistance at $885 that I have often detailed. But silver has mapped out a classic triangular pattern over the past 18 months. This pattern is close to the point of resolve. A break above $7.50 will snap the chart out of its trading range into an upside catapult. The upside count is to $10 for silver. If silver appreciates almost 50% then so will gold!!
I have previously detailed this chart of the gold price relative to the copper price. The middle grey line is into massively oversold territory and in addition the oscillator in the top frame is refusing to confirm the new lows. This indicates that gold has been hugely under performing copper but that a serious trend reversal is about to occur in favour of gold and precious metals.
The Rand price of gold is compared to the JSE Overall index. It has effectively underperformed for the past 20 years!! I have also marked all the divergence buy and sell signals. Over the past nine months another major divergence has arisen indicating that the Rand price of gold is ready to reverse trend and outperform the JSE Overall market. This is a weekly chart and does not move rapidly but it clearly indicates that the poor performance of the Rand price of gold is ready to change into a superior
Impala Platinum will benefit from the breakout in the platinum price above the critical $885 resistance. This is shown by the upside break out of the triangular pattern of the past year. In addition there is a serious upside breakout on the RSI that will take Impala to further upside highs.
Anglo American Platinum has also signalled a major upside break out of a recent triangular pattern on both its share price and RSI oscillator. There is a lot further upside still to come out of this data and there are no danger signals of sell divergences. The price is ready to break through to an all time new high above the resistance of the past five years.
Anglogold is also looking to break out of its triangular pattern that has held it in check for the past two years. The same breakout will also occur on the RSI once the upper trend line is penetrated. This is brewing up for a major upside surge.
The $ DROOY price has refused to make new lows despite the negative publicity that surrounded it. Although the major downtrend remains intact there is a diamond pattern brewing at the bottom of the range and a break above the 98c level will trigger a serious upside move for this much maligned stock.
For the past three years Goldfields has been trading in a rectangular pattern. Elliott Wave analysis dictates that such a pattern should have seven sub legs. This pattern has completed those sub waves and is set for a major upside breakout of this restricting formation. A move above $10.65 will trigger the next price surge.
In total contrast Harmony has fallen substantially during the past two years. But there is a reverse head and shoulders pattern that indicates a trend reversal forming. A move above $9 will trigger a serious upside surge in the price of this stock.
Agnico Eagle (AEM) has broken its downtrend and formed a base over the past six months. During the past two weeks the price has broken upside out of this base and is ready for further upside. Any minor reaction back to under $13 is a buying area.
For some time Coeur d'Alene has been forming a serious reverse head and shoulders pattern during the past six months. It has just broken upside out of this pattern and is currently drifting back to test the breakout. Any price under $3.70 is a buying level.
Pan American Silver (PAAS) also has a reverse head and shoulders pattern and has already broken upside off this base. The recent pullback under $16 is a buying area.
Apex Silver (SIL) also has a flat resistance level that needs to be penetrated to signal the next upside phase. Any price relaxation under $14 presents another buying area.
Bema Gold (BGO) has a similar chart in which a serious base pattern has emerged over the past few months. The recent price activity has pushed the price off this base. The minor pullback to test the breakout at $2.40 is a second chance buying area.
Eldorado (CA:ELD) is yet another stock to break upside off its base pattern of the past six months. The pullback of the past couple of weeks to test the breakout level is a second buying area.
Kinross (CA:K) has a variation on the base theme. It needs to break above $7.60 to confirm the upside breakout off the six months base pattern.
Meridain (MDG) has also formed a base pattern and lifted off it. The recent pullback to test the breakout level is a second buying area at around the $19 level.
Heavyweight Newmont (NEM) has just broken upside off a serious base pattern. The recent pullback of the last couple of weeks is a second chance buying area. Any price under $40 remains a buying area.
For FREE trial data contact :-
Dr. Clive Roffey
info@utm.co.za
www.charts.co.za
www.shareaction.co.za
6 August 2005
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