1. Administrative Comments:
Lots of new new things this weekend:
First off, Adam Hamilton of Zealllc, www.zealllc.com wrote a very well written article on my custom HUI gold stock trading method. I am very flattered that Adam chose my method out of the hundreds that were sent to him over the last few weeks.
Check out the article: Trading the HUI/Gold Ratio
Adam Hamilton writes a weekly newsletter and runs Zealllc Intelligence. His work is widely followed and respected. If you have not had the pleasure of reading Adams work, then you owe it to yourself to check out his work and his newsletter is one of the best deals on the internet, very cheap in price.
Anyway, because of Adams newsletter on Friday, we have a bunch of new members here at Breakpoint Trades. I welcome all of you and hopefully you like what you see here at Breakpointtrades. Breakpointtrades is sort of like the 'swiss army knives' of investment websites, there is simply a ton of information here and it can be overwhelming. Please feel free to ask questions and participate on our message board and chat room.
Secondly, I made a ton of improvements to the Market Sectors Page. I added a ton of new sectors and charts and rearranged everything. I'm not finished yet with this section, but it is now much closer now to what I want. I hope you all find it very useful.
2. Misc Comments:
It's a very nice weekend here in the St. Louis area and I'm having trouble getting in the mood to write a newsletter. You know how writing is, you have to be in the mood, you can't just force yourself to write something good.
Anyway, wow what a week! George Bush handily won the election and the markets loved it. I can't believe that it's finally over! Historically, when the incumbent wins the presidency, the market has an end of year rally. Unless some disaster occurs, it looks like this is going to be the case once again.
I looked at thousands of charts over the weekend and a ton of sector as well as world charts,and the vast majority are bullish. The market is experiencing a general broad based rally in nearly all the sectors, as well as the world markets.
For example, take a look at the following chart, the Dow Jones World Index:. This chart is a composite of many of worlds stock markets. Notice that it is breaking out, which confirms that the World markets are all rallying together.
In the short term, the market is getting a little over bought and will pullback soon. However, pullbacks should be bought and the market should do well until at least until January 05.
Fundamentally, is this broad based rally justified? No way, unprecedented debt levels in this country, personal, corporate, and governmental. Outrageous deficit levels compared to GDP, and inflation is likely to hit this country in a big way in the next few years, peak oil, etc. etc. However, I am a market technician and I will trade accordingly to the charts, if the charts say the market rallies, then we go long. Fundamentals will eventually catch up with the market, but in the short term, anything can happen.
Gold had a great week and continues to look great; the Dollar continues to weaken and gold metal looks fantastically bullish as it has formed a large ascending triangle that is beginning to breakout. Based on my HUI/Gold ratio chart, the time to really load up on gold stocks was in mid. August, however there should be plenty left to this gold rally.
Crude oil continues to pullback which is helping the market. However, do not get complacent: Based on the chart, this is simply a pullback in an uptrend. Oil has many support layers underneath that will keep it from out right crashing. The chart below suggests support levels at about 47, 42, and 40 respectively. Unless oil falls below 40, I will consider it in an uptrend.
The chart of the IRX follows short term Fed interest rates very closely. The chart below suggests that the Fed is going to once again raise short term rates by 0.25% again in the 4th. quarter.
Likewise, long term rates are starting to rally and have broken a downtrend line. I am currently short 30 year bonds, symbol ZB on Interactive Brokers.
The ratio between short term and long term rates strongly suggests that long term rates are going up: Notice the strong positive divergence in the MACD. For this ratio chart to rise, either short term rates have to fall (which isn't going to happen) or long term rates have to raise and out perform short term rates. This chart is a good reason for my short position on long term bonds.
3. Market Index/Sector Analysis:
The Nasdaq has a great week and broke the important downtrend resistance line on good volume and is testing resistance at 2055. Once the Nasdaq breaks 2055, it will be on a path to test the yearly highs at 2155. However, I would like to see it pullback once before taking out 2055.
A larger time frame shows us that the Nasdaq is has broken out of a large symmetrical triangle which is very bullish. The Nasdaq could easily run up to the next resistance area after the Jan. 04 high at 2155 is taken out which is about 2330!
The moving average ribbon chart of the Nasdaq suggests the next move will be up.
Based on the March 2000 high the 38% Fibonacci retracement is about 2680. Can the Nasdaq make it this high??? Who knows, that's too far out to guess, but it should be noted nonetheless.
The DOW also broke significant downtrend resistance lines on good volume. The broken downtrend lines will now act as supports if a pullback occurs. The next resistance levels are 10500 and the high at 10750, of which the DOW should test and possible break this year.
This long term chart of the DOW resembles a bullish flag that has been broken to the upside. However, the important resistance line is the 5 year downtrend line. If the downtrend resistance line can be broken on good volume, then it's off to the races for the DOW as it will likely go in to the 11,000s.
Just like the Nasdaq, the M.A. ribbon chart of the DOW suggests the next big move on the DOW will be up.
The S&P 500 looks fantastic as it closed at a new 21/2 year high on Friday on good volume. More gains are likely in store for the S&P this year.
The long term chart of the S&P shows us that 1175 is important multi-year resistance. Once this is taken out, a run to about 1300 could ensue.
The next chart shows us the 'big picture' of the S&P 500: Note that a 20 year utprend line was has been broken. In technical analysis, broken uptrend lines are often retested and become resistance.
If this occurs again, then the S&P has a lot of room left to the upside to rally before running into the broken uptrend resistance line.
The NYSE is very bullish and making new highs on good volume. Pullbacks will offer buying opportunities.
The Semiconductors have been lagging the market all year. However, the semiconductors now look bullish as they have broken a major downtrend line on good volume.
The 1st target for the Semis is now about 1200.
I'm not going to cover an of the other market sectors because the vast majority of them look good, nearly everything is rising together in tandem.
For example, take a look at a few foreign markets, nearly every foreign market is also rallying together. It's as is a world bull market is occurring.
The DOW Jones World Index confirms this:
For example, just take a look at the Austrian Market, wow!!!
Germany looks great, bullish flag breakout.
Chile looks like a good buy right now...
To me, Japan looks exceptional, and looks like a bullish inverse head and shoulders pattern.
ETFS: EWJ, JOF, and mutual fund UJPIX are was to invest in the Japanese market.
A few Indicators:
The NASI has whipsawed and has now given us a buy signal via the parabolic sar and the Stochastics suggesting that the Market could indeed give us that end of year election rally.
The direction, NOT the level is what's important for the VIX. You can see that the VIX broke support of an uptrend line in mid. August. This break caused a strong market rally that lasted until mid September.
Last week I stated that if the market was going to have an end of year post election rally, then the uptrend line in the VIX has to be broken. Well, obviously the uptrend line was broken, thought I didn't expect it to fall this far so soon. The VIX may retrace a little in the short term and thus give the market a few days to catch its breath before the next big up move.
The percentage of chart in the Nasdaq that are above their 200 MA has broken the horizontal resistance line and looks like it will continue to run up. This chart further confirms the bullish situation for the market.
The weekly BPCOMPQ gave a buy signal via parabolic sar in mid. August. I am bullish on the market until a sell signal is produced.
4. Gold and Precious Metals Analysis:
The chart of gold metal looks fantastic as it has formed a very bullish ascending triangle with resistance in the low 430s and is trying to breakout here.
Gold metal is on the verge of a major move, my price target is about $500 sometime in 2005.
The long term chart of gold looks great and shows us how important the 430s resistance area is. A break of this level will likely send gold to the next resistance zone of $500.
The strength/weakness of the Dollar is the some important factor in determining the direction of gold as the two are inversely correlated. The Dollar has broken major support at 87 of a descending triangle as well as the final support between 84.5 and 85 which is very bullish for gold.
However, broken supports are often retested, therefore the Dollar may soon bounce to retest the broken support between 84.5 and 85. If the Dollar does bounce, it will be temporary, but it may cause some temporary weakness in gold and gold stocks. Use a Dollar bounce as a buying opportunity.
Longer term chart of the Dollar: simply a never ending series of breakdowns. However, I would like to see gold eventually de-couple from the Dollar. When this occurs, then the 'real' gold bull market will begin, the bull market you've been witnessing the last few years is just 'kids stuff' compared to what you will see when gold finally de couples from the Dollar.
In technical analysis, a rough price target can be calculated based on the current pattern at hand.
Based on the descending triangle pattern below, by subtracting the height of the descending triangle from the base of 85, I get a target for the Dollar of around 77!!!
Silver metal also looks bullish and now has firm support at $7 and resistance between 7.5 and 8.
Gold Stocks:
As I stated above, Adam Hamilton of Zealllc, www.zealllc.com wrote a very well written article on my custom HUI gold stock trading method. I am very flattered that Adam chose my method out of the hundreds that were send to him over the last few weeks.
Check out the article: Trading the HUI/Gold Ratio
The HUI/Gold metal ratio is very useful in catching the long term trend in gold stocks. This chart is very useful because gold stocks tend to out preform or under preform the metal at times. When gold stocks are out preforming the metal is the time to own gold stocks, and when they are under preforming the metal it is time to sell or short gold stocks.
Take a look at the following graph of the HUI/Metal ratio chart:
Notice that major buy signals are generated when simple downtrend lines are broken to the upside. Also notice that when the buy signals are generated (via green arrows) that the ratio chart rides the 50 MA up nicely for a long trend? Sell signals are then generated when the ratio chart finally drops below the 50 MA.
Also, a the trending indicator, ADX can also be used as a sell signal. The ADX consists of three lines, ADX, +DI, and -DI. Notice that a reliable sell signal is also produced whenever the +DI falls below the -DI.
By simply following this chart, you could buy a basket of gold stocks whenever a buy signal is produced and ride them to fantastic profits by simply using the 50 MA as a simple sell signal. Notice that the major price run ups lasted about 5 to 6 months on average and produced huge gains.
Currently, a buy signal was generated in mid August when the downtrend line was broken. Thus, if you currently hold gold stocks, then simply hold them until the 50 MA is broken. From past analysis, the current rally should last for at least a few more months. Obviously, the time to go long heavy in gold stocks was in mid August. However, this chart gives me more confidence to continue holding my gold stocks for the duration of the run.
By employing a simple strategy like this, I think one can make huge profits much easier then trying to time the daily and weekly ups and downs than can whipsaw your account. Also, it's much easier for those who work and have jobs, as you can buy at designated times and simply hold until a sell signal is produced
A close up of the chart above shows us that the HUI/Gold ratio touched the 50 MA early last week and then rebounded nicely off of it. So far so good, continue to hold your gold stocks if you are a longer term swing trader.
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The 60 min chart of the HUI shows us that the HUI is right at strong resistance near about 240. Notice that this is the third attempt at this resistance level. A breakout to the upside would quickly send the HUI to the next resistance at 250.
The daily chart of the HUI confirms the resistance at 240 and 250.
Of course, the big picture of the HUI looks very bullish, nice bull flag. Based on this chart, the HUI should hit the $300s sometime next year!
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