New highs for gold, oil. Stock indexes down.

g0102.pngThe gold market made big news today with prices finally taking out the all time high set 28 years ago. For those unlucky enough to have bought at the peak in 1980 and held on all these years until breaking even, today was a good day. Of course the destruction of the dollar would mean you would have lost the bulk of its purchasing power, not to mention how much better the money would have done being invested in almost any other asset. Many of the gold mining stocks fared much worse. Gold is a great trading vehicle, but it has been a terrible investment. That’s hard for me to say, being a long time gold bug. But it’s true.
Regarding resent price action, which has been impressive as a trade, I have been referring to the triangle forming on the chart in many of the previous posts. Of course the breakout occurred during the break I took over the holidays. I didn’t participate in the futures market, but I’m still holding most of my core gold mining stock position. There is cause for concern about this breakout. Traditionally the gold mining stock lead the way higher for the price of gold, and new highs in gold were usually confirmed by new highs in the mining shares. This time most of the mining shares have so far failed to better the peak in early November. This divergence may still resolve, but it is worth keeping an eye on it. This relationship might not be as important as it once was with the advent of alternatives such as ETFs.
Many analysts today were suggesting gold was pushed up by the new high in crude oil. It did hit $100 today for the first time, however it was on only one one contract in the pit, so it won’t show on the electronic contract quotes. Maybe tomorrow.
dx0102.pngThe chart to the right is the US Dollar index, which recently formed a small uptrend after a momentum divergence signalled a possible bottom. You can see the last bar on the right of the chart shows the dollar getting hit hard again today, which is probably most of the driver for higher gold prices. I thought, and still do think, that the dollar has more upside to correct the deeply oversold condition, and the extreme sentiment, and that could have caused gold to resolve the triangle to the downside. But each market should be treated individually, and that triangle breakout in gold was certainly a powerful signal. The dollar trend looks mixed at the moment, with the trend indicator pointing up, but with prices below the lines.
baltic0102.pngThe Baltic Dry Index has formed a nice downtrend. The double top marked a nice clean top, with a small retest that failed to get very far, and then a subsequent break after the retest where the yellow line is drawn. This chart has negative implications for many world markets, most notably China.
spy0102.pngThe S&P chart to the right shows somewhat of a sideways consolidation. The bulls could argue that the price action today held at the low of 10 bars ago. Prices rejected that level then, and again today. The red line shows the support. Bears could also argue that prices started accepting the lower prices, even though they bounced off the lows. There was quick rejection 10 days ago, but today prices traded into that tail for most of the session. And, the trend is turning down with momentum coming off the overbought area and pointing lower, as can be seen in the indicator in the lower subgraph.
I maintain the mechanical bull in the upper left graphic. I would prefer a mechanical bear, but one wasn’t available. The point is that riding a bull is sometimes known as an “eight second ride.” This market has been swinging so quickly back and forth, it is difficult to stay with any trend for more than about 8 seconds it seems.
q0102.pngThe Nasdaq QQQQ chart to the left looks similar. The trend indicator is slightly to the positive. However, prices are under the blue lines, and momentum has also turned lower from the upper overbought line. Prices have stayed far above that same low point of ten days ago that the S&P tested. There is not much of a trend that can be determined in this back and forth chop on the daily chart. Hopefully the trend will clarify soon.

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