This Week's Technical SnapShotThis week we again look at the technical situation in the Gold Sector.
GLD Weekly Time Frame
This week we had a breakdown on the GLD price channel that had been set in place for the last 3.5 years. This is a major development which could push prices lower over the coming months. Nothing stands out at this point that a turnaround is near, so until then, we have to expect that lower prices are ahead of us. I have outlined the possible downside targets as t1, t2, and t3. I am not stating that these targets must be hit but rather if each of these support zones fail then the next target comes into play. The Stochastics and MACD are clearly still pointing down and so expect t1 to get hit. The RSI is also still stuck below its downtrend. The only thing I see changing this view is if out of the blue the FED and or ECB announce some type of QE. I believe the next round of QE is inevitable but when that occurs is a different story.
GDX 60 Minutes Time Frame
The same old stuff going on with the Gold stocks. We have been stuck within this down channel for the past 2.5 months. Until there is a decisive breakout, prices will continue to move lower. Again, continue to watch the ratio at the bottom of the chart. If it breaks the down channel before the GDX breaks out, it could give an early indication that the gold stocks have bottomed and want to rally higher.
US Dollar Index
Last week we stated: "We are still neutral on the dollar but it sure looks like it wants to breakout higher this next week. If so, it most likely will continue to put pressure on commodities."
That is exactly what happened this week in almost all commodities; everything got sold off. The first target remains the highs of March around 80.75 where I expect the US Dollar will have some type of correction back to at least the 80 level. The next target would be the highs of January around 81.80 and a longer term target of around 88.
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Canadian Venture Exchange
I want to highlight the potential head and shoulders pattern on the Canadian Venture Exchange. Primarily this exchange is where most of the junior commodity explorers trade. Should this pattern play out, its target would actually be under the 2008 lows. A more conservative target would be a retest of the lows of 2008. This would absolutely kill the junior commodity space. I want to highlight a quote this week that I came across as it relates back to this chart.
Rick Rule mentioned the following on 5-11-2012 over at KingWorldNews; He states:
"The thing that's really on my mind today is the state of the junior equity markets. John Kaiser recently published in his newsletter that some thing like 60% of the junior equities, on the TSX Exchange (in Canada), are selling at half of their 12 month highs, at less than 25 cents a share, and have less than six months of working capital in their treasury. That's a different way of saying that more than half of the TSX is headed for extinction if the market doesn't change.
It's difficult for people to get their heads around the fact that they bought a stock for a dollar and it's selling for a quarter. They don't want to sell it until the price goes back up, but the price is not going to go back up. The point of all of this is that the length and breadth of the TSX Venture Exchange is in extraordinarily difficult circumstances. Juxtaposed against that is the fact that the best 5% or 6% or maybe 10% of TSX Venture stocks have very bright futures, are very undervalued and can extract capital.
I'd like to share with you, Eric, an event that happened to me yesterday. In a market that is starved for cash, and extraordinarily depressed psychologically, I had to threaten legal action to get in a $30 million financing that was seriously oversubscribed. The prospective CEO of the company, that will be the beneficiary of this offering, said to me, 'Rick, I'm engaged in a surreal discussion. Most of my peers, in management, at TSX Venture companies, are wondering what they are going to be doing for a living in six months. And I have a $30 million financing that is so oversubscribed that the various participants are threatening litigation.' I think this story is a metaphor for where we are with that exchange. There is sophisticated money, with good technical skills, and there are people on the exchange that have good assets that they have advanced well, and they will do extraordinarily well in the next two or three years."
Should this play out, please make sure you protect yourself if you hold any positions within this sector. You want to make sure that your companies have a viable deposit and that they have the cash on hand "now" to last at least 2 years. Only the quality companies will be able to outlast this storm.
Gold Stocks remain on a sell signal. The Juniors look like they are about to fall off a cliff if the market does not turn around. Protect yourself.
We remain long term bulls on the gold and silver sector, but for the time being both look like they want to head lower.
Dax Pallotta is the owner and proprietor of TheStockFox.com. For more information or to subscribe to our GDX Swing System please visit our website at http://thestockfox.com/automated-systems/gdx-automated-system.html
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