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On the Brink

October 25, 2004
  • If gold shares leverage gold, why are $XAU and $HUI below their triple tops? Worry about gold being overbought? Is this bullish or bearish? Probably bullish for gold in longer term, but in short term gold could pull back before it breaks up through $430/oz. Too hard to make a trading call.
  • NEM broke up today, just as gold reached a triple top. Are professionals now getting into the gold market in anticipation of a break up through the triple top? (On the brink of the 2nd Primary up leg)
  • Dow Micro view: Dow looking oversold in short term
  • Dow Macro view: Dow looking very vulnerable on monthly charts. (On the brink of the second Primary down leg)
  • Walmart (proxy for retail): OBV chart shows declining tops. Downward pointing 200 day MA, parabolic sell signal given on monthly,
  • JPM gapped down below its 200 day MA this week as it also broke below a rising trend line
  • Citigroup chart in bear trend.
  • Gold shares today gave a parabolic buy signal on the monthly chart.

Conclusion

Markets are at extremes on short term trading indicators. If Bush gets in, markets could bounce favourably (short term). If Kerry, markets could break other way. Question appears moot. Long term charts are not happy.

This is a VERY nervous market. If Dow does not bounce up from here, next week will likely be chaotic.

Is Volume starting to rise on the Dow? If so, this will clearly be selling pressure. OBV has been in a down trend following a sell signal last month. MACD certainly does not look like it wants to break UP.

PMO sell signal emerged on weekly's during this week, but not yet on monthly. Nevertheless, I don't like the shape of the blue PMO line on the monthly chart. A sell signal on this indicator could lead to a savage down move.

Walmart chart now peeking below its flattening 48 month MA, and parabolic sell signal given this month. Monthly OBV deceptive relative to daily OBV. Daily OBV shows investors have been exiting since March.

Citigroup and JP Morgan (proxies for banking industry) are looking vulnerable.

Citigroup chart in a clear bear trend, with some minor support on OBV.

JPM this week gapped below its 200 day MA as it simultaneously broke down through a rising trendline

Long Term chart of $XAU gave a Parabolic buy signal today, and monthly oscillators appear to have significant upside before an overbought situation materialises. Note the contracting histograms on the ROC and MACD

Overall Conclusion

We appear to be on the brink of a second Primary Up leg in gold and a second Primary Down leg in equities. Arising from short term overbought/oversold trading indicators, we could experience some "noise" in the next couple of weeks before the breakouts occur (if Bush wins), but a Kerry win will not be seen in a favourable light by the markets.

Worst case scenario: A hung vote with either (both) sides demanding recounts.

Caveat to traders: The above is "obvious" to all technicians. There may still be some surprises in the short term.


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