Stock Market, An Up and Down Day

By: Steve_Betts

It’s been an interesting start to the week as the Dow opened lower and looked like it could fall even more. Now the Dow is up 45 points. Meanwhile the US dollar rallied all the way up top 81.34, just above strong resistance at 81.32, only to fall back down into negative territory by noon time. Then there was gold! As the US dollar rallied, gold fell down to test strong support at 1,090.10, only to bounce back later in the morning. At 1:15 pm EST the April gold is trading at 1,104.00 down 3.00 for the session.

Some of the volatility is due to the fact that it appears the health care bill is gaining support and could now pass both houses of Congress. This means more debt and more bureaucracy to produce a system that won’t work and most people don’t want. The government has been an inefficient administrator up until now, and there is no indication that heath care will be any different. All the government knows how to do is create debt.   

With respect to gold, we are seeing some interesting developments in the daily chart. The first feature of interest is the formation of a small head-and-shoulders formation on the right hand side. The neckline comes in right around 1,106.00 and we were trading significantly below it earlier today. Right now gold is trading two dollars under the neckline and it remains to be seen where we’ll close. Should gold recover all of its early morning losses to trade in positive territory, it would a positive signal indicating that real strength exists in the market:

Note also that should gold hold here we would have another higher low on a closing bases. Gold has decent support at the 1,107.00 area and we always seem to find buyers whenever the price dips below it. The technical facets of the market still look weak to me with gold trading below the 50-dma and both RSI as well as MACD headed lower. What I do find interesting, and it’s something no one writes about, is how easily gold falls when the Dow turns lower and the early morning activity was a case in point.

While gold is trying to hang on, the HUI is actually doing quite nicely. It continues to hold above decent support at 398.58, but has yet to break out above strong resistance at 427.32 and has two failed attempts to its credit. Right now the HUI is trading in a narrow range that runs from 411.00 on up to 427.00 as you can see in the following chart:

Like gold we can see that RSI, MACD, and the histogram have all turned down, but the HUI is still managing to stay above the 50-dma. Individual stocks that I follow like Goldcorp, Buenaventura, and Silver Wheaton are all in a similar position and, like the Dow last week, I expect the short term direction of gold, silver and gold stocks will be resolved sometime this week.

Another market that will influence the direction of gold is the US dollar. After testing good Fibonacci support at 79.62 for four sessions last week, the dollar turned higher and this morning tested strong resistance at 81.32 for the third time (see green arrows): 

That test now appears to have failed miserably as the spot US Dollar Index is trading down .10 at 80.65. The new high today apparently completed the third day of a first degree reaction and now the dollar is backing off. Should the dollar continue lower here, it would mean another test of good support at 79.62 and I would be surprised to see it hold this time around.

By Steve Betts

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