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April 4th, 2004
Table of Contents:
(click on the numbered sections below and you wil be taken to that corresponding section)
1. Administrative:
2. Market News:
3. General Market Analysis, and Commodities:
4. Metals (Gold / Silver):
1. Administrative Comments:
none...
2. Market News:
What an interesting week for the market, but before I get to the major market indices, I would like to discuss a few news items.
First off, the market rallied all last week, and finally surged on Friday from a much better then expected jobs report with 308,000 jobs created last month.
Wall Street jumps after jobs surge
The general market faired well all last week, but the employment news was icing on the cake for the major indices on Friday, which caused a final surge on huge volume for the market, especially for the Nasdaq.
Interest Rates:
However, one thing that seemed to go unmentioned with the jobs report was the huge surge in interest rates across the board: I have not seen this news mentioned anywhere on the mainstream news sites, but I happened to see it on my charts.
Interest rates had the largest one day spike I have ever seen, which is likely a response to the economic jobs report. The broad rise in new jobs may have spooked bond traders into thinking that the economy will 'over heat' and interest rates will need to be raised in the near future in order to slow growth in an effort to ward off inflation.
As you can see from the 10 Year Yield (which basically follows mortgage rates), Fridays rise in interest rates was huge, and one of the largest one day spikes I have ever seen! On Friday, 10 year interest rates opened at 3.89%, and closed at 4.14%.
On a long term chart, long term interest rates are once again getting close to breaking an important multi year downtrend line. If this downtrend line is broken to the upside, the door will be open for rising interest rates. Rising interest rates would probably kill, or at least slow down, the housing market.
If you own housing stocks, or stocks in this sector, I would place stops on them, or think about exiting them, especially if this downtrend line breaks to the upside. Aggressive traders might want to consider shorting housing stocks.
Palladium:
Most of you know that I have been extremely bullish on Palladium since late December 2003 when I pointed out that its chart had formed a nice base and was close to breaking out of a symmetrical triangle. Palladium was around $210 at the time, shortly thereafter Palladium broke out and last week palladium blasted through $300! Palladium, like gold, is in a bull market and has a long way to go.
As you can see, palladium metal has had quite a run this year and has almost achieved my second price target of about $315 - $320. However, eventually palladium will need to pullback and consolidate as it's going near vertical. A pullback will present buying opportunities. Palladium, like gold, is in a bull market and will rise much further over the next couple of years. Palladium was once over a $1000 an ounce and probably has a lot of room left to run, for both technical, as well as fundamental reasons
The two major palladium stocks I suggested at the time as good investments were PAL and SWC, both of which are now up over 50%.
SWC took off on Friday and closed over $18. I recommended SWC back in late December when it was around $10.
The next major price target for SWC is about $24, based on the long term chart. Of course, I can't wait until SWC reaches $40, but that won't happen for quite a while.
A likely reason for palladium breaking $300 on Friday was a news story from Reuters about a breakthrough which allows palladium to replace some of the platinum used in diesel emission and control systems. Since palladium is about $600 cheaper then platinum, this would represent a significant cost savings. Over time, this would create a much higher demand for palladium, thus causing its price to rise significantly.
Umicore auto emission breakthrough lifts palladium
The fundamentals of palladium are looking better all the time and I think palladium has a lot further to rise in the long term. In the short term, palladium will need to consolidate soon as it its price run has been nearly vertical. Also consider that the next resistance area is around $315 - $320, which is only about $10 -15 away.
When palladium finally does pullback and consolidate, it will represent another great buying opportunity. If you bought earlier this year when palladium was in the low to mid $200's, there you can hold fast during any correction. However, if you have yet to buy palladium or palladium stocks, I would wait for a correction or pullback to occur before doing so.
Also, for those of you who have large savings accounts, there is a way to grow those savings accounts and actually invest in precious metals without having to buy the physical metals or the corresponding stocks.
www.goldmoney.com
www.e-gold.com
The two websites above are interesting because you can open savings accounts that are 100% backed by gold. e-gold.com is especially interesting because you can open an account that is 100% backed by gold, silver, platinum, and even palladium.
Out of the two, goldmoney.com looks like the easiest one to start as you can fund your account online with your present checking account.
Anyway, the point is, these days you are not safe from losing your money by simply having a savings account. With the US Dollar in a bear market, your cash money (while safely out of stocks) is losing its purchasing value over time as the Dollar continues to lose its value. By having a savings account backed by gold and silver (or even palladium), your savings account will grow overtime as these precious metals are in a huge bull market.
3. General Market Analysis and Commodities
Let's look at the charts:
It's interesting at how much the technical picture of the market can change in one week:
Last week, the market rallied all last week, and finally urged on Friday from a much better then expected jobs report from March.
Wall Street jumps after jobs surge
The Nasdaq chart has turned bullish: last week, the Nasdaq rallied to break the downtrend line of a bullish flag, and finally gapped up on Fridays positive job report to take out the 50 MA.
The next resistance levels are the three previous highs (noted by red dotted lines) at 2070, 2095, and the January high at 2155.
Fridays move occurred on high volume, which shows conviction. Also, Fridays gap to clear the 50 MA could be considered a 'breakaway gap', which is the most bullish of gap ups and usually the beginning of a new uptrend.
see the education section on breakaway gaps
However, before you get too bullish, the previous highs need to be taken out and the gap needs to hold on a pullback. A huge down week next week could negate this pattern.
In otherwords, the Nasdaq needs confirmation next week for this chart to remain bullish.
Anyway, next week begins earnings season, which is traditionally good for the markets, we shall see...
Further adding to the bullish argument is a chart I first posted last week on the message board - a Five Wave Elliot Wave pattern:
Here's a little information on Elliot Wave patterns:
Primary waves have 5 waves, with waves 1, 3, and 5 in the direction of the primary trend. Waves 2 and 4 are counter waves. Wave 3 is always the longest wave, and never the shortest, and finally wave 5 is the final wave of the primary trend.
I'm no expert in Elliot Wave analysis, however the Nasdaq chart certainly resembles an Elliot Wave pattern that has just entered wave 5 on last weeks rally after breaking a bullish flag pattern.
The 5th leg up on the Nasdaq would put a price target out about 2250 - 2400 for the Nasdaq and would last until about June or July. For you political conspiracy theorists, such as scenario would benefit the Bush Admistration for the coming reelection this fall.
I suppose the perfect conspiracy, would be for the market to follow Elliot Wave and rally until mid summer, thus benefiting George Bush on the economy. Then for the military to 'magically' find Bin Laden near the end of the summer, thus helping Bush defend his 'War on Terrorism' Policy, which is currently under major fire for.
Anyway, how the Nasdaq holds up over the next week or two will tell us if this last weeks rally was the start of a new uptrend, or just short covering in an intact downtrend.
Remember, the Nasdaq still has to break the series of lower highs before it is technically in an uptrend.
On a 60 minute chart, you can clearly see the gap formed on Fridays great employment data. The gap will now act as support.
The S&P 500:
The S&P 500 also rallied hard last week, by taking out resistance at 1125 and the 50 MA.
The next major resistance is, of course, the high at 1165. Prior resistance at 1125 might now offer support on pullbacks.
How the S&P 500 holds up over the next week or two will tell us if this last weeks rally was the start of a new uptrend, or just short covering in an intact downtrend.
After breaking a year long uptrend line, the S&P 500 has rallied back break this uptrend line as well as the 50 MA.
The S&P 500 is not as bullish as the DOW, but one more strong close will further strengthen the chart and clearly put it above the uptrend line and the 50 MA once again.
The next major resistance level is the high at 1165, which needs to be taken out on major volume.
The DOW Jones is technically the weakest of the three major indicies: Last week, the DOW rallied to take out minor resistance at 10325, which may now act as support on a pullback. However, the DOW did not convincingly break the 50 MA, and there is a downtrend resistance line just overhead that has yet to be broken.
The DOW needs one or two more positive days to convincingly break the downtrend line and turn positive. If the downtrend line breaks to the upside, then the next major resistance is the high at 10750.
As you can see from the longer term chart below, the broken year long uptrend line may act as major resistance for the DOW.
Other Sectors:
Besides the major indices, I also looked at the major sectors - noted on the Market Analysis page: Many sectors charts have reversed and now look positive again. The one sector I would stay away from is the Housing sector, as interest rates jumped big time on Friday, which may continue to cause pullback in this sector.
However, the one sector I would be very wary of is the Housing sector. Long term Interest rates spiked on Friday and are close to breaking long term downtrend resistance lines. Higher interest rates would kill this sector.
NASI Indicator:
The NASI indicator officially gave a buy signal last week as the stochastics crossed up over 20. It's hard to say how long this indicator will trend up, the low around 50 might offer resistance.
From the looks of this indicator, it's hard to imagine it going to new highs and sustaining a market rally that would last until mid summer because it is beginning of lows, and not making new highs.
Commodites:
The commodities index is in a secular bull market and is currently at levels not seen since 1983. This is just the beginning folks, the CRB will eventually go to the 300's and beyond and inflation will rear its ugly head in the US. ]
Commodities are raw materials, and raw materials are in a long term secular bull market. Don't listen to the lying politicians, logic dictates that if raw materials are going up, and all our goods are made from raw materials, then all the goods we buy have to go up as well.
Try this, if you have a spare million dollars, buy commodities, such as gold, silver, palladium, and their respective stocks, as well as other commodity stocks, then simply turn off your computer. Five years later, turn your computer back on and you will be a very wealthy multi millionaire.
The CRB index continues to make gains, however it is currently at a 20 year resistance line.
Crude oil has been on the rise after OPEC said it would cut oil production by 1 million barrels a day. However, late last week, Saudi Arabia (OPECs largest producer) said that it would not let oil shortages harm world economic growth with a surprise visit to the White House.
Saudi Arabia reassures Bush on oil supply
As you can see from the chart below, crude oil broke its uptrend support line, thus temporarily putting an end to oils the relentless uptrend that has been in effect since Septermber 2003.
Even though crude oil has broken its short term up trend line, as you can see from the long term chart below, the long term uptrend remains intact.
The long term resistance is at $40, while the long term uptrend support line is in the high $20's. I doubt oil will fall all the way to the high 20's to retest the uptrend line, however it's technically possible.
Either way, the chart remains intact, but oil will now take longer to break the important $40 resistance level.
Foreign Markets:
Last week, I noted that IFN, Indian ETF fund, look ready to breakout, last week it did well and looks like it will continue to do so.
Other foreign ETFs that look good are: EWA (Australia), EWZ (Brazil), IFN (India), and TLK (Indonesia). My old favorite, TRF (Russia) just keeps going, amazing. TRF was a pick of mine in April 2003 for $20.75, now it's close to $50!
Since breaking the bullish flag, gold has been on a tear: Last week, gold rallied to test the formidable resistance in the low $430's, but could not break it, and fell back. The previous high in the high teens might now act as support, noted by the dotted line. Gold might need to consolidate before breaking out to new highs, especially if the US Dollar rallies.
This gold chart is a thing of beauty.
On a longer term chart, you can see that gold bounced perfectly off support of an uptrend line, and subsequently through a bullish flag to test major resistance last week. Long term support is obviously the uptrend line near $400.
Silver has amazing strength and is going vertical. Pullbacks should be bought.
Long, long term I think silver will go to $10, $15, and beyond. Though in the short term, silver is going parabolic and will need to consolidate soon. I would wait for a pullback before buying heavily into this metal.
Gold Stocks:
Like the metal itself, many gold stocks are also technically strong. My two favorite gold stocks are AUY and NXG. both of these have great fundamentals. AUY, for example, I think could run to $10 or more in a years time. AUY is my gold 'Story Stock', while NXG is a close second.
Of important news, last week, IAG and WHT merged. You are going to see alot more of this during the rest of the year. Many smaller gold companies will be bought out by larger ones in order to increase earnings and proven reserves.
On a short term basis, the HUI has resistance at $242 (dotted line), and support near the converged moving averages and the broken downtrend line.
Longer term, the HUI looks awesome, with a bullish flag pattern forming near the long term uptrend line.
Obviously, gold stocks look great for the long term, just check out the long term chart of the XAU below with its inverse head and shoulders pattern.
On a short term basis, the US Dollar will continue to effect gold. The Dollar currently has resistance at 90, and support on the 50 MA. If the Dollar decides to rally, then gold will likely consolidate for a few weeks, but if the Dollar falls, then gold will breakout immediately.
The Dollar has formed a small bullish flag that could break to the upside - I think this scenario has a strong possibiltiy of coming to fruition. If this happens, gold will consolidate here for a few weeks before breaking out.
The longer term chart shows the important support and resistance levels for the Dollar: The Dollar is in a strong downtrend with support at the bottom of the channel and resistance at the top of the channel. Obviously, the Dollar could still rally to test the top of the channel, thus hindering gold in the short term.
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