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Commodity, Currency, Gold, and Equity Market Analysis by Dr. Christian
Normann |
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Weekly Market Analysis Based on Closing
Prices, Friday December 4th 2009 - Precious Metals
Correcting as Anticipated, but Major Rally Likely to Continue into Spring 2010
Introductory Summary:
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Gold reached our short-term target of $1200 +/- about 2 percent, and we closed our
gold and silver futures trading positions at gold $1190 and silver
$18.83 (FYI, we usually close trading positions at least 1
percent before the expected target, as ideal targets routinely get over
or undershot by a percent or more). Gold, silver, platinum, and palladium
appear to be having a short term correction - probably of about 6 to 10 percent
from the high for
gold (for some reason about 9 percent is common). We are
looking to re-enter our long gold, silver and GDXJ trading positions
when gold trades closer to its 10 week (50 day) moving average
(currently around $1090 and rising about $3 per day). The odds absolutely
did not favor maintaining our long trading position with gold
stretched about as far above its 10 week moving average as it
normally ever gets. Of course, we did not
sell our long-term gold investment position held since early 2003. We are long crude oil and a
few select stocks - OIH, AMZN, MOS, and POT, while short IYR
and ITB (real estate trusts and homebuilders).
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U.S.
and World equity markets are presumably still in multi-year
downtrends.
When the S&P 500 Index validly broke the 300 day (65 week) moving average,
we stated that this indicated the move up would continue higher. It
then pushed into the next significant resistance range from 1070-1140,
and recovered almost 50% of the 2007-2008 decline (the halfway point
is S&P 1120), which is
approximately where corrective moves
tend to top out.
We believe a second phase down is likely to begin at some point
during the winter.
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Of great long-term significance, gold successfully broke out
of a 19 month long base when it had a weekly close at $1048. Gold
now has expected major support between $1033.90 and $978. A weekly close
below $970, while not expected, would indicate a failed breakout.
While we expect the short-term correction
in gold to continue a few percent lower, we expect it to move much
higher over the coming months and years.
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Increasing the odds that we will see a new bull market in crude oil
is the fact that the 10 week moving average has crossed the 43 and
65 week moving averages to the upside. From 1999 to 2008, that
always indicated a resumption of the uptrend.
If crude oil breaks $80 by at least 1 percent on a weekly close, a new major
uptrend is very likely underway.
Should oil have a weekly close beneath the long term moving averages, prices could decline anew.
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The CRB Commodity Index has confirmed it is likely back in a primary uptrend
as its 10 week moving average has, as
with crude oil, also crossed the 43 and 65 week moving averages to
the upside. The CRB Index is near an almost perfect setup for
going long.
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The US
Dollar (as measured by the US Dollar Index) may eventually be headed
for a test of the all-time low of 70.70 recorded in 2008 after
closing 1 percent below the late 2008 low of 77.69. A weekly
close at 82 or higher is needed to resume the larger uptrend from
March 2008. The next major support is around 74 at thick green
line, and the dollar appears to be turning up for at least a
short-term rally from that crucial level. Likely target is the
78-81 area.
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Follow Normann Financial for clear and concise chart and market
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| Detailed Analysis of Individual Charts of Current Interest: |
The Gold / Dow Jones Industrial Average ratio has corrected back to our anticipated target
of about 0.10, indicating that the time to exit general equities and
re-enter long gold positions has arrived.
Gold has risen over 300 percent against
the Dow Jones Industrial Average since year 2000, which is the same as saying that the
Dow currently is down over 75 percent when measured in gold - the true
hard currency - and that is after the huge rally in the stock market since March! |
U.S.
and World equity markets are presumably still in multi-year
downtrends.
The S&P validly broke the 300 day (65 week) moving average. It
pushed into the next significant resistance range from 1070-1140,
and recovered almost 50% of the 2007-2008 decline (the halfway point
is S&P 1120), which is
approximately where corrective moves tend to top out.
We believe a second phase down is likely to begin at some point
during the winter.
The high level of positive sentiment
in equities combined with extremely negative sentiment
toward the dollar indicates to us that it is quite likely there
will be a second down phase for stocks, where a second phase rise in the U.S. dollar simultaneously
takes place. That would be the opposite of what the
majority of market participants are expecting.
The most plausible target range for the next intermediate bottom
for the S&P 500 remains around 620-580 and 5900-5500 for the Dow Jones
Industrial Average. Initial support is likely around
the long term 43 and 65 week moving averages, then near S&P 800.
If S&P 800 breaks on a weekly close, the odds of a continued fall down to
test the March low at 666 increases significantly. A total
collapse down to below S&P 500 / Dow 4000 cannot be entirely ruled out
either. An 89% decline as from 1929 to 1932 would take us to about
S&P 175 and Dow 1550. We may not ever get that far, but we may go
lower than most can imagine. However, there is also the
possibility that the nominal value of the stock market does not fall
very much (or even rises somewhat), while the stock market still
collapses further when measured in gold (rather than paper dollars).
Recent developments in commodities and precious metals increase the odds of this scenario.
Now that gold has broken out above $1034, we expect it to go up
substantially over the next several months and years. Unless the
stock market starts to rise at an equal rate, general equities will be
falling when measured in honest money whose value the central banks
cannot inflate away.
A final bottom in the stock market may be another year or more
away from happening. For example, during the 2000 to 2002 bear
market, the S&P took 31 months from the peak to the ultimate low (down
51% from the peak). During the 1929 to 1932 market collapse, the
Dow Industrial Average took 34 months to hit bottom (down 89% from the
peak). So far, the S&P is only 24 months into its current bear
market. There could thus easily be
about
a year of decline left for the equity markets.
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| Until next weekend, have a very good week. Always remember
that proper risk management is essential - don't fall victim to
complacency just because the markets have seen much lower volatility
over the past few months. There could be - and most likely
will be - at least one more major leg down for general equities starting this winter,
and volatility appears set to increase once again. |
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Normann
Financial - Commodity, Currency / Forex, Gold, and Equity Stock
Market Analysis by Dr. Christian Normann Trading Investing
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