Issue #101
Dear Member,
Here is this week’s big picture update.
GOLD
Fundamentals:
Last week, once gold broke through some technical resistance zones I mentioned in the $1,280 – $1,289 region, shorts began scrambling for cover, adding further fuel to the rally.
However, gold failed to close above a weekly buy signal at $1,320.40.
It looks as though the cyclical timing analysis of a cycle inversion in January, leading to a rally, is what played out. However, unless gold can close above $1,320 on a weekly closing basis, the rally may be doomed, as noted in my issues earlier this week.
Technicals:
Bulls will be looking to press their advantage this week. But as noted in my issues, gold is extremely overbought, and volume and open interest during the recent rally declined.
Technically, the rally appears to be nothing more than a bear market bounce.
Should gold, however, manage to close above $1,320 by Friday, then I would expect this rally to continue with major resistance coming into play at the $1,360 level.
Importantly, that does not mean gold has turned the corner and a new bull market has arrived.
Indicators show gold to be overbought on a daily basis with the Relative Strength Index (RSI) now above the 70 level.
Please note, also per my issues earlier this week, that the last three rallies where gold became overbought led to an average decline of more than $100.
SILVER
Fundamentals:
Silver had a strong move up on Friday, gaining over 5% in one day’s trading, playing a little bit of catch up to gold. But like gold, silver is also very overbought and NO major buy signals have been hit.
Technicals:
Silver’s strong rally on Friday saw the metal blast through resistance at the upper Bollinger Line and the 200-day moving average line and closed the week out at $21.50.
Like gold, indicators confirm that silver is also overbought on a daily basis with the RSI up above the 70 level.
THE U.S. DOLLAR
Fundamentals:
Positive euro-zone economic data helped boost the euro against the U.S. dollar last week and likely reduced expectations of a further rate cut by the European Central Bank (ECB) at next month’s meeting. Stronger-than-expected growth in Germany and France in the final quarter sent the single currency higher, closing out three weekly gains against the dollar.
Also hitting the dollar last week was the severe winter weather in the U.S., which helped to dampen economic numbers as evidenced by the fall in factory production for January, the worst decline since 2009.
However, that is a temporary factor, and I stand firm on my analysis that the dollar remains poised for a large move up.
Technicals:
There are a lot of support zones for the dollar that come into play on the way down to 79.50, but we do not want to see a close, particularly on a weekly basis, below 79.50.
Resistance will now come in at the 80.87 level represented by the middle Bollinger Line and above that the 200-day moving average and the upper Bollinger Line that has remained at about the 81.50 level. A weekly close above that will put the dollar’s bull market into full throttle.
THE U.S. 30 YEAR BOND
Fundamentals:
Bonds continued their selloff for the second week running as traders anticipate further tapering in the months to come despite the economy entering a soft patch as evidenced by weaker economic figures released during the week. Traders seem to be baking into the numbers a continued tapering of bond purchases by the Fed.
Fed Chair Janet Yellen last week pledged to the House Financial Services Committee to maintain the policies of her predecessor to taper bond purchases. That seemed to disappoint the market and put further pressure on bonds.
At this stage, I believe all bond rallies should be sold as the bear market in bonds looks set to soon resume.
This does not preclude bonds rallying further in the interim — especially if the stock market takes another leg down — but the bigger picture still remains very bearish for bonds, and bullish for interest rates.
Technicals:
The long bond continued its bearish move last week but managed to find some initial support at the center Bollinger Line at just below the 132 level.
This area must hold, otherwise a daily close below will likely result in a retest of the 50-day moving average and the lower Bollinger Line at around the 130 area that is firmer support. A weekly close below that and bonds will be in trouble.
On the upside, if bulls can manage to reclaim the previous high above the 133.50 area, the recent short-term bullish trend will be reignited. This will take some doing as the 200-day moving average and upper Bollinger Line currently rest here.
Best wishes,
Larry
