This Week's Technical SnapShotThis week, we will again look at the technical situation in the Gold Sector. But first, let's first check out what the general market has been up to and jump right into the charts.
S&P500 Daily Time Frame
The S&P500 formed a small double top in March and April, broke the 1360 support, and has been falling straight down for nearly 2 weeks. You can see in the latest sentiment surveys we believe that the US dollar could be putting in a short term top. So, we expect that the general market will also put in a bottom here sometime soon. We would not be surprised should it fall into the 1260-1280 area. This zone should act as support and we should get a pretty decent bounce. If it doesn't hold, then we could easily retest the 1100 fairly quickly.
GDX Weekly Time Frame
Since our last update, the GDX has fallen back to the lows of Feb 2010. We like the action that we started to see towards the end of this week. On the Weekly chart the gold stocks have managed to create a hammer type candlestick with a very long tail. It is possible that we generated a capitulation low this week and could mark a bottom. However, don't get too excited... If you look at the 60 minute chart below you'll see that we still have to breakout of its down channel. The bulls still have lots of work to do!
GDX 60 Minutes Time Frame
We have been stuck within this down channel for the past 2.5 months, and 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.
The GLD recently broke its sideways triangle pattern and bottomed at the lows of December. Expect a retest of 156-157 and possible short term peak. If the dollar continues higher the 148 level will most likely fail and could fall towards the lower 140's. Until the GLD gets back above 162, we will continue to remain neutral on gold in the short term.
We are still extremely bullish over the longer term on gold. We personally added to our physical gold and silver holdings on the Wednesday's low. Keep Stacking!
US Dollar Index
With the Euro falling to yearly lows, the dollar in turn has rallied and tested out its highs. Statistically, this is one of the longest streaks ever in the US dollar. You can expect some sort of consolidation or retracement at these levels. Should the dollar breakout the highs, the 87-88 level would be the next intermediate target. Also, expect a further decline in the general market and commodities.
US Dollar Sentiment
SentimenTrader's indicator shows extreme pessimism in the short to medium term. Previous occurrences when readings got this high, almost always managed to create some type of an low in the equity market. From here a bounce should ignite soon.
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XAU Daily RSI Values
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On May 15th, we got the 6th most oversold value on the 14 period RSI in 30 years. The gold stocks are so oversold that some type of relief rally should be right around the corner. As you can see on the chart, in most instances the low reading in the RSI marked the exact low or the low came within 1-2 weeks. The only time this was different was in the 2008 crash. With each low RSI reading a rally came, but prices eventually broke the index lower.
Long-term the Gold Stocks still remain on a sell signal. Over the short term we do expect this rally to continue. Should the down channel on the GDX decisively breakout to the upside, one might want to consider taking a long position on the next retracement.
With the General Market we would expect some type of bounce to happen here soon as the US dollar sentiment is excessively bullish at this time.
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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