1. Administrative Comments:
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2. Market Comments:
As many of you know, I live in the St. Louis area. I've been watching the 2nd game of the World Serious tonight with the Cardinals and Red Sox. The Cardinals lost the first game and are losing this game as well.
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Another rough week for the market: The Dow Jones hit a new low for this year on Friday, and the S&P has broken support at 1100. The Nasdaq is barely holding an uptrend line, but it won't take much to break it. Also, currently the futures are down big time, so it looks like the market will gap down tomorrow morning unless the futures come back.
We are also in earnings seasons, so anything goes here. Remember not to hold a stock through an earnings report. It's just a gamble to do so.
The election is about a week away now and all I can say is finally! I have never been through an election where so many people were so divided. I don't know about you, but the opinions and emotions during this election year seem so extreme that it seems like we're back in the 60's when political protests were common place (of course I can only guess, I was born in 72). For example, people on both sides talk about how it will be Armageddon if the opponent gets elected. I rarely discuss politics with anyone I do not know, because the tensions are so high. Anyway, I can't wait for this to all finally be over, and I'm sure most of you feel the same.
Oil just keeps going up and this is starting to really weigh on the market, as it should. Oil is the king of commodities and effects the price of everything from the obvious such as a gallon of gas, to the not so obvious, such as a the food we eat. With every manufactured item we use, oil was involved either to provide the energy to manufacture it, and/or to transport it. All commodities are rising and coupled with a falling US Dollar, how could inflation not be upon us?
Inflation is upon is, just go to your local supermarket and compare prices to those of a few years ago. The government constantly reports that inflation is low, but politicians always have an agenda. For politicians, it's all about getting re elected (doesn't matter if they are a Democrat or a republican). In other words, there are reasons for government officials to downplay inflation and give biased reports.
Take a look at your grocery bill, take a look at how much houses are appreciating, college tuition is going through the roof, car prices are out of site, rising drug and health care costs are soaring, etc. Oh, but computers are getting cheaper all the time; which, incidentally, is one of the things the Government uses to calculate the CPI. Now I ask you, does this make any sense??? Do falling computer and electronics prices really affect you that much? No way, not as much as oil/gas, groceries, housing, college tuition, car prices, health care, etc. all of which are skyrocketing.
The CPI, consumer price index. Whether you believe in conspiracy theories or not, politicians have reasons to 'low ball' inflation to make things seem better than they really are.
Regardless, eventually, the politicians will not be able to hide the inflation threat even with their 'biased' CPI numbers.
Crude oil hits another all time high, though not on an inflation adjusted price. Crude oil is overbought, but was we know, stocks that are overbought, can become more overbought, therefore it's possible oil goes higher here. Oil will pullback sometime, but when it does, there are now many supports below that will keep it high for long time. For example, 50, 46, 42, and 40 are support zones.
Interestingly, I gave a price target of about 60 a barrel for oil back the spring newsletters. Oil is getting close to my target, though this is one prediction I wish I was wrong on.
The long term picture of gold is scary: As long as the long term uptrend line remains intact, oil is in a bull market, period! The uptrend line is in the low $30s.
As I stated above, the chart below shows us that commodities are in a strong uptrend. The CRB is a composite of 17 various commodities.
The NASI gave a sell signal early this month with the Parabolic SAR, which has been accurate so far. Note that negative divergence in the MACD also gave a sell signal.
The BPCOMPQ also gave a sell signal via the Parabolic SAR.
The Nasdaq closed right at an uptrend line, but with the futures way down this evening, this uptrend line may fail on Monday. The support near 1900 is important, and if broken, will likely send the Nasdaq down to the next support near 1850 or lower.
Of course, the long term chart of the Nasdaq is well intact with long term support near at the uptrend line, which is in the low 1800s.
The Dow Jones is now the weakest of the three major indices: The Dow broke 10,000 earlier this month and has been on a melt down ever since. Currently, the DOW is sitting right at support near 9750, if this fails, the next support is the bottom of the channel. The scandal in the insurance sector is weighing heavily on the Dow.
The S&P 500 is also weak after breaking support at 1100. Unless the S&P rallies soon, it could be on a path to retest the lows. Notice from this 60 min chart, that the S&P does not usually forms 2 or 3 tops before rolling over, never does it form a V top. This chart should be noted for educational purposes to remember that tops in the market give plenty of opportunity to short and are rarely V tops.
One of my favorite short funds, USPIX Profunds Ultrashort has a long base near 20. If the market melts down later this year or early next year, this fund could take off and a long term price target is in the low $40s. I do not own this fund, personally I would like to see the market put on a small end of year rally, then top out in early January 2005. If this occurs, I will buy this fund.
GOLD Analysis:
Gold metal and corresponding stocks are doing great and are benefiting from the declining US Dollar.
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. This is very bearish for the Dollar, while subsequently very bullish for gold, precious metals, and corresponding stocks. The next major support for the Dollar is about 84.5 to 85 noted by the red dotted line and will be tested eventually.
However, I must point out that the Dollar may put on a bounce in the short term very soon to restest the broken support at 87. This 'retesting' of broken support is a common occurrence in technical analysis. Such an event would cause a pullback in gold and gold stocks, and present a good buying opportunity. If this occurs, I will buy more gold stocks on the pullback as gold is in a powerful bull market.
Gold metal looks fantastic, just take a look at the following chart? Rarely do you see such pretty charts, a beautiful bullish ascending triangle. Gold tends to form triangles during periods of consolidation.
The long term chat of gold looks great as well: you can see the major resistance marked in gold below: A price target of $500 is achievable if the gold band is broken. Gold also seems to have formed a cup and handle pattern spanning about 8 years!
The HUI has support at the uptrend line and resistance at 240 and 250. Also note that the 50 MA just crossed up over the 200 MA!
The 60 min chart of the HUI shows us that the HUI has support at an uptrend line and 220, with resistance at the downtrend line.
The long term chart of the HUI shows us that it has broken out of a year long bullish flag pattern. The broken downtrend line is now support. This chart is very bullish for the HUI in the long term.
In fact, the HUI is up an amazing 614% from November 2000 to the December 2003 highs! How can analysts ignore this powerful and very obvious bull market???
The next chart is very useful if you own and trade gold stocks, the HUI/Gold metal ratio. Basically, gold stocks tend to outpreform the metal and under perform the metal at various times. The chart below is very useful because when it is in an uptrend, it is a good time to own gold stocks, and vice versa.
I've received a few emails asking me for my favorite gold stocks, here they are:
My favorite gold stocks are: AEM, AUY, AU, BGO, CLG, GBN, NXG, NEM, RANGY, WHT:
As you can see, AEM has clean resistance near about 15
Of course, it's the long term chart of AEM that really shines with a symmetrical triangle:
AU also looks good, as it has clean resistance at about 39.30
BGO appears to be forming a bull flag or pennant on this pullback to support
However, it's the long term chart of BGO that really shines: beautiful bullish flag
CLG has clean resistance just over head and a nice base.
GBN has clean resistance just overhead and has come out of a long base.
NXG has simply pulled back to support, may be a good place to accumulate:
RANGY has a nice basing pattern and could easily hit 3.60 or higher in the next few months.
WHT is forming a bullish pennant, but the longer term chart looks even better, not shown here.
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