Taylor On The Markets & Gold
Jay Taylor
TRADER ROG'S CORNER
TRADER ROG'S CORNER-MAJOR MARKETS ADJUST IN OCTOBER AFTER WEEKS OF NON-TRENDING CHOPPY ACTION
"Teach a parrot the terms 'supply' and 'demand,'
and you've got an economist."
-Thomas Carlyle
Stocks and bonds are topping and rolling over for a slide, and precious
metals are rallying with silver leading the way up. The big story is oil,
which shows no indication of stopping its shooting star rally, heading for
$60.00 per barrel. We have been waiting for more clarity on the weekly
charts of the main market drivers: stocks, bonds, metals, energy, and the
dollar. While the dollar is not quite certain as yet, the others show me
enough for strong ideas carrying us through year-end.
The Dow has topped and has tried three times to break overhead resistance
and failed. The weekly chart is saying we go down in a C-wave correction to
9815 support. Below this level, with a mini-crash, I see 8250-8400 support.
This downtrend has been in effect since 2000 with a completed relief rally.
The smaller, more recent downtrend is moving faster, telling me a big
breakdown is imminent soon. Today is Thursday, October 7, 2004, and
tomorrow we will get a suspect jobs report, designed to prop this market up
with the S&Ps. Metals futures traders would be smart to not have open long
positions in front of the jobs report. You just know what's coming. Metals
stocks and option holders-hold on.
The S&P monthly chart shows a quite visible C wave down, headed toward 800 support. The Nasdaq monthly chart is similar to the S&P, but will deliver a more shallow dip correction, as they have already had their big crash. I
see Nasdaq 1,000 support. Look at the S&P 100 chart ($OEX) and it has
already rolled over into a C wave down.
The 30-year bonds have been in a long rally trend since 1982, and have formed a head-and-shoulders top, and are now rolling over and dropping down
to main support at 103.00. This will take some time, barring a geopolitical
event. Key point: The Asian buyers are not selling much, but they are not
buying either. During a big ten-year auction this week, the Japanese didn't
buy, but just sat and watched. Asian buying is waning. Keep this in the back of your mind.
Our gold monthly chart shows a rally trend with a huge double bottom in
1999-2001, and subsequent rally. The distinctive cup and handle formation
from 1996 through the present is a major indicator, with the handle mostly
formed. Rallies after the handle formations are normally very aggressive.
Please note the buying over the $415.00 dotted red resistance line. Also,
see the dotted red resistance line at 502 gold (top of chart), which is our
fall goal. Especially note that the rally has two segments. The first is a
shallower uptrend line, and in the second portion, the support line becomes
steeper as we accelerate up faster.
The Philadelphia Gold and Silver Index's weekly chart (XAU) has been in a
rally since 2001. Since 2003, the support base for the rally is steeper,
showing more extreme buying and interest. The chart has formed a top,
finished an a-b-c correction, charged sideways for a spell, and is beginning a three-wave up out of a continuation triangle for breakout. This bodes well for gold and silver stocks to make a very strong move. The companion monthly XAU chart is slower, and consequently the bars are still inside the continuation triangle, but still headed for a topping breakout.
The U.S. Dollar monthly chart shows that we are headed toward a semifinal
support of 80.00. It is behaving like it's trying to move up in a B wave after chopping sideways. No certainty here as yet. The companion USDX end-of-day chart clearly shows three failed tries for a breakout rally. The 88.00 level is a key to determine if we head to 90 and breakout, or fail again after the third try up, and move toward 85. My best guess says more chop, then collapse to 85, then 80. Below 80 we are in big trouble.
The Crude Oil monthly chart shows a very strong continuing rally. It closed
yesterday at $52.00+ or -, achieving my first goal over $50.00 per barrel.
We have three more mini goals prior to next main resistance at $60.00 per
barrel. Oil had prior heavy resistance at $41.00 in 1991. The oil weekly
chart shows a rally since fall 2001. Former main support here was $25.00.
Our new main support on this chart is $35-$37.00. The newer secondary
support is at $41.00. We have been in a steeper uptrend since July.
In Summary
Precious metals stocks will rally this month and perhaps a little into November. We have an excellent chance for explosive moves in gold and silver next week. Our goal of $502 December 1, 2004, gold remains intact with our silver goal of $9.795.
A mini stock market crash is a distinct possibility. Futures are dangerous right now. There is concern that the recent double top in gold indicates more sell-off. I say no, not for now. The Dow, Nasdaq, and other global stock exchanges will decline to new recent lows.
Energy products including crude oil, heating oil, gasoline, propane, and electricity will all become much more expensive. Prices are going to new record highs. Food prices are going up, and wholesale grains, while cheaper
now, will increase in price dramatically next summer.
The metals should sell off on profit taking in November. The other stock markets will recover a little and rise and chop through January 2005. Metals will rally again in late January and February. Silver is acting like it will move faster than gold. Considering the thin volume compared to gold, look for faster and more erratic silver moves, both up and down. Buy gold, silver, and energy stocks.
Sell the Dow, Nasdaq, and most other "mainline investments." Many smart traders are out of the bond market and like the Canadian dollar and Swiss franc. The election nonsense is working to stall some of these market
moves. However, it cannot prevent them. No matter who is elected, the markets will go their own way. Bond and currency traders have the power. They alone determine market direction. -Trader Rog
TRADER TRACKS-IS IT 1987 ALL OVER AGAIN?
Several months ago, we began to notice that current charts for 2003-2004
were very similar to patterns in 1987. I reviewed my 30-year chart book,
and cross-checked a variety of commodities, metals, indexes, and bonds,
finding many similarities. In recent weeks, other essayists have started to
mention the same thing, so I decided it would be interesting if we listed
some 1987 numbers with current ones and made a few projections for
October-December, 2004. Here they are:
Comparing Fibonacci retracement levels which are fairly accurate, the first
level of +23.6% (Fibonacci) is very close to our proposed projection of +22.5% for December 2004 gold. The second Fibonacci level of -38.2% lands
right between the -41% and -35.93% for Dow and S&P comparisons. While it
is entirely possible for the Dow to drop over 4,000 points in two months, I
doubt it will happen. However, with Dow support at 9815 (easily broken),
and the next major support at 8250-8400, I believe this is where we are at
October's end for the Dow.
A bear rally could then take us back to 8750 after consolidation in late
December or January 2005. The Dow at 6000 or less would be a target goal
for fall, 2005. Eventually, we see the Dow under 3000 and gold close to 3000 before it sells back to 1250 for a trading range in 2007-2008.
October 9, 2004
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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