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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, Thursday December 24th 2009 - Gold Appears to Have
Bottomed and Crude Oil Surges to Again Challenge Critical $80 Level
MERRY CHRISTMAS!
☺
Introductory Summary:
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When gold reached our short-term target of about $1200, we closed our
gold and silver futures trading positions. We have since been
looking to reenter our long gold and GDXJ junior gold miner trading positions
whenever gold traded close to its 10 week (50 day) moving average
(currently around $1114 and rising about $1 per day), and
we did when gold entered our target range of $1115 to $1080. We
keep our long term investment position in gold at all times, but the
odds absolutely did not favor maintaining our long trading position
when gold was stretched about as far above its 10 week moving average as
it normally ever gets. However, at this point, odds again
favor holding a long trading position as the short-term correction
in gold likely has hit bottom or soon will do so around $1080 or
higher.
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We are long a
few select stocks - JIN.TO, AUN.V, OIH, MOS, POT, and UAUA 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 significant correction or a second major phase down is likely to begin at some point
during the winter, and we may short the S&P futures if the S&P has a
surge up toward 1140. The Nasdaq Composite is about 5% below
likely massive resistance around 2400.
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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.
The short-term correction
in gold is likely either complete or soon will be around $1080 or
higher, and we expect it to move much
higher over the coming months and years. Only a weekly close below
$1080 would make us favor a deeper correction toward $1033.90 -
$978.
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Increasing the odds that the major bull market in oil that began in
1998 has resumed is the fact that the 10 week average (green) has
crossed the 43 (blue) and 65 (red) week moving averages to the
upside. From 1999 to 2008, that
always
indicated a resumption of the secular 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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We've
long expected major support for the U.S. Dollar Index around 74, and
the dollar turned up almost precisely from that crucial level.
Our likely target has been the 77.69-82.07 area, and the dollar is
now pushing up against the bottom of that range. A top could
be seen anywhere in that range, and only a weekly close near 83 or
better would make us expect a much larger, longer-lasting rally to
unfold.
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Follow Normann Financial for clear and concise chart and market
analysis, as well as updates on whether the Federal Reserve and the
other central banks of the world are failing or succeeding in
destroying the purchasing power of the U.S. Dollar,
Euro, and other fiat currencies through inflation. The charts provide far better
information than government officials or Wall Street.
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Detailed Analysis of Individual Charts of Current Interest:
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When gold reached our
short-term target of about $1200, we closed our gold and silver
futures trading positions. We have since been looking to
reenter our long gold and GDXJ junior gold miner trading positions
whenever gold traded close to its 10 week (50 day) moving average (currently around $1114 and rising about $1 per day), and
we did when gold entered our target range of $1115 to $1080.
We keep our long term
investment position in gold at all times, but 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. However, at this point, odds again favor
holding a long trading position as the short-term correction in gold
likely has hit bottom or soon will do so around $1080 or higher.
Our expectation is for
gold to move much higher over the coming months and years. Only
a weekly close below $1080 would make us favor a deeper correction
toward $1033.90 - $978. The long-term view of gold is that it broke out of a 19
month long base when it had a weekly close at $1048. Gold
is thus expected to have major support
between the two red lines at $1033.90 and $978. It would
take a weekly close below $970 - which we do not consider
likely - to
indicate a failed breakout and possible end to the major
bull market in force since the 1999/2001 lows.
We expect gold to trade
well above $1400 by some time in the
spring of 2010.
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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 Nasdaq Composite is about 5% below
likely massive resistance around 2400.
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 25 months into its current bear
market. There could thus easily be
about
almost a year of decline ahead 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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