Cart (0)
VIDEOGold Set to Break Out?
By
Przemyslaw Radomski
Jul 20, 2009 9:20 am
And precious metals set to move higher long-term.
 |
|
I read an article in this week’s New York Times about 2 Swedish grandmothers who found what experts say may be one of the richest gold deposits in Europe. The blueberry crop had failed that summer, so -- instead of collecting fruit as they normally did -- these amateur geologists went prospecting around their small village.
The ladies went to a place where trees had recently been felled, exposing rock. Using their hammers, they cleared soil, digging for about 6 hours until they found a rock with a dull glimmer. Analysis showed that the stone contained more than 23 grams of gold per ton; most active mines in Sweden yield less than 5 grams. The grannies were smart enough to obtain the mineral rights for a large area around the find and to negotiate, without lawyers, with about 20 mining companies from Sweden and abroad.
Luck is always welcome, but I don’t depend on it. Instead, I rely on good old technical analysis, along with other important tools, which will give me indications on how to make money in precious metals.
Let’s start this week with the chart for the general stock market using the SPY ETF, as it allows me to analyze volume.
General Stock Market
There was action in the main stock market indices last week. An invalidation of the head-and-shoulders pattern took place on Monday. It was further verified on the following days.
The invalidation was accomplished after an intra-day down-wing move that touched the 200-day moving average.
I previously noted that -- unless we see a sharp move above this line (89 level) on Monday or Tuesday -- the technical picture remains bearish for the general stock market.
In fact, the bounce above the head-and-shoulders neckline on Monday and Tuesday was not only sharp, but also took place on high volume, making it even more significant. Some momentum traders now believe that, after 4 weeks of downside, the bulls are back in the market as earnings season begins in earnest.
Moreover, prices moved even higher in the following days, also on relatively high volume. I marked the second breakout on the above chart with the upper blue arrow -- price broke above a declining trendline created by using the head and the right-shoulder portion of the now invalidated pattern.
On Friday, stocks ended little changed but held onto an enormous rally for the week in which the Dow Jones industrials and the S&P 500 index posted their best weekly performance since the week ending March 13. All the major stock indices rose about 7% for the week.
Both the breakout and the consecutive daily move took place on significant volume, which suggest that higher prices are possible from here. Had we seen higher prices along with visibly declining volume, we could have inferred that a correction was likely. Volume was very small on Friday, which would normally make a correction likely (thus creating a shorting opportunity), but this time it wasn't confirmed by analogous values in the indices themselves.
Additionally, we see that prices didn't increase substantially on Friday, so it's difficult to say that the prices rose on a small volume, since they were barely higher. The underlying index (S&P 500) was down on Friday by only 0.04%, which means that Friday's session was, in fact, a small consolidation, implying that small volume is a natural phenomenon and does not in itself signal lower prices.
Positions in gold and silver.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
