|
Please note: the optimal screen resolution for this page is 1600 x 1200 (UXGA Info) or 1920 x 1080 (1080p Info). If your screen resolution cannot be adjusted to at least 1600 pixels wide through your operating system display settings, you may need to scroll a bit to the right in order to see the most recent chart action. We apologize for any inconvenience, but believe it is outweighed by the ability to clearly see - in a single chart - several years of market history and important long-term support/resistance levels (that can significantly affect traders in all time-frames).
Please visit the About Normann Financial page for important information about risk management and position sizing. We provide analysis in good faith and to the best of our ability, but all information on this website is provided solely for educational purposes and does not constitute investment advice. Learning to operate successfully in the financial markets is not easy - it takes a substantial amount of time, effort, and discipline. Your trading and investment decisions are exclusively your own responsibility. Proper risk management is crucial.
|
Weekly Market Analysis Based on Closing Prices, Friday January 22nd 2010 - Crude Oil, Commodities, and Stocks Convincingly Fail Recent Breakout
Introductory Summary:
-
Of great long-term significance, gold successfully broke out of a 19 month long base when it had a weekly close at $1048. Gold now has expected major support between $1033.90 and $978. A weekly close below $970, while not expected, would indicate a failed breakout.
-
When gold reached our short-term target of about $1200, we closed our gold and silver futures trading positions. We then looked to reenter our long gold and GDXJ junior gold miner trading positions whenever gold traded close to its 10 week (50 day) moving average, and we did so when gold entered our target range of $1115 to $1080. We keep our long term investment position in gold at all times, but the odds absolutely did not favor maintaining our long trading position when gold was stretched about as far above its 10 week moving average as it normally ever gets. However, given recent action, a deeper correction to between $1034 and $978 looks likely, and we closed our long gold and GDXJ trading positions when gold broke $1120.
-
We also closed most of our long stock positions when the S&P 500 index broke 1120, and are now only long JIN.TO and AUN.V while short GME, IYR (real estate trusts), and S&P futures contracts.
-
U.S. and World equity markets are presumably still in multi-year downtrends. The S&P validly broke the 300 day (65 week) moving average and temporarily broke above the 2007 to present downtrend line (in dark blue) before plunging to close well below it again just two weeks later. The S&P recovered 53 percent of the 2007-2008 decline (the halfway point is S&P 1120), and corrective moves tend to most often top out after retracing between 50 and 62 percent of the previous move (62 percent would be about 1230). We believe a second phase down likely has begun, though it could turn out to be no more than a major correction as long as there is no weekly close below 940. Likely support areas for the S&P are seen at 1080-1060, 1000-920, and 800-760. A weekly close below 760 would argue for 666 being the next target.
-
Crude oil broke major resistance at $78 - $80 ($79.86 was the significant high set in 2006) during the first week of 2010, but turned around and cleanly broke back below the same level a mere two weeks later. Failed breaks of important levels usually lead to significant moves in the direction opposite of the original breakout. In other words, it is now likely that oil will see a significant correction (or more), potentially with an initial fall to the lower orange channel line around $65 to $63. Should the lower channel line be broken on a weekly close, we could be in for a plunge similar to that in 2008 - 2009. Only a break above $85 would reliably reconfirm the larger uptrend.
-
The $CRB Index broke major resistance at the 284-285 level (the 1983 and 1984 major highs and 2007 significant low) during the first week of 2010, but turned around and cleanly broke back below the same level a mere two weeks later. Failed breaks of important levels usually lead to significant moves in the direction opposite of the original breakout. In other words, it is now likely that most commodities will see a significant correction (or worse) with the $CRB index potentially seeing an initial fall to somewhere around 250. If 245 breaks, we could be in for a plunge similar to that in 2008 - 2009. Only a break above 300 would reliably reconfirm the larger uptrend.
-
For a long time, we expected major support for the U.S. Dollar Index around 74, and the dollar turned up almost precisely from that crucial level. Our likely target has been the 77.69-82.07 area, and the dollar is now pushing up against the bottom of that range. A top could be seen anywhere in that range, and only a weekly close near 83 or better would make us expect a much larger, longer-lasting rally to unfold.
-
Long-term U.S. Treasury Bonds have been declining toward critical support between 114 and 112. If 112 breaks on a weekly close, significantly lower prices (and higher interest rates) are likely on the way for the next several years. For the secular uptrend in bond prices (downtrend in interest rates) to remain in force, a bottom needs form near present levels. So either the long bond breaks down in the next few months and long-term rates go significantly higher (and, as a result, mortgage rates too), or we get at least temporary relief with bonds rallying back toward resistance and long-term rates falling. Given the amount of borrowing the Federal Government is planning to do over the next several years, odds appear to strongly favor the scenario of a major breakdown in bond prices this year (with a corresponding rise in interest rates).
-
Follow Normann Financial for clear and concise chart and market analysis, as well as updates on whether the Federal Reserve and the other central banks of the world are failing or succeeding in destroying the purchasing power of the U.S. Dollar, Euro, and other fiat currencies through inflation. The charts provide far better information than government officials or Wall Street.
|
Detailed Analysis of Individual Charts of Current Interest:
|
When gold reached our short-term target of about $1200, we closed our gold and silver futures trading positions. We then looked to reenter our long gold and GDXJ junior gold miner trading positions whenever gold traded close to its 10 week (50 day) moving average, and we did so when gold entered our target range of $1115 to $1080.
We keep our long term investment position in gold at all times, but the odds absolutely did not favor maintaining our long trading position when gold was stretched about as far above its 10 week moving average as it normally ever gets.
However, given recent action, a deeper correction to between $1034 and $978 looks likely, and we closed our long gold and GDXJ trading positions when gold broke $1120.
|
The Gold / Dow Jones Industrial Average ratio has corrected back to our anticipated target of about 0.10, indicating that the time to exit general equities and re-enter long gold positions has arrived.
Gold has risen over 300 percent against the Dow Jones Industrial Average since year 2000, which is the same as saying that the Dow currently is down over 75 percent when measured in gold - the true hard currency - and that is after the huge rally in the stock market since March!
|
U.S. and World equity markets are presumably still in multi-year downtrends. S&P validly broke the 300 day (65 week) moving average and temporarily broke above the 2007 to present downtrend line (in dark blue) before plunging to close well below it again just two weeks later. The S&P recovered 53 percent of the 2007-2008 decline (the halfway point is S&P 1120), and corrective moves tend to most often top out after retracing between 50 and 62 percent of the previous move (62 percent would be about 1230). We believe a second phase down likely has begun, though it could turn out to be no more than a major correction as long as there is no weekly close below 940. When the market starts heading down, likely support areas for the S&P are seen at 1080-1060, 1000-920, and 800-760. A weekly close below 760 would argue for 666 being the next target.
The high level of positive sentiment in equities indicates to us that it is quite likely there will be a second down phase for stocks. That would be the opposite of what the vast majority of market participants are expecting.
The most plausible target range for the next major bottom for the S&P 500 remains around 620-580 and 5900-5500 for the Dow Jones Industrial Average. A total collapse down to below S&P 500 at 500 / Dow at 4000 cannot be entirely ruled out either. An 89% decline as from 1929 to 1932 would take us to about S&P 175 and Dow 1550. We may not ever get that far, but we may go lower than most can imagine. However, there is also the possibility that the nominal price of the stock market does not fall that much, while the stock market still collapses when measured in gold (rather than paper dollars). Now that gold has broken out and traded above $1034 for months, we expect it to go up substantially over the next several years. Unless the stock market starts to rise at an equal rate, general equities would be falling when measured in honest money whose value the central banks cannot inflate away.
A final bottom in the stock market may be about another year away from happening. For example, during the 2000 to 2002 bear market, the S&P took 31 months from the peak to the ultimate low (down 51% from the peak). During the 1929 to 1932 market collapse, the Dow Industrial Average took 34 months to hit bottom (down 89% from the peak). So far, the S&P is 25 months into its current bear market. There could thus easily be about almost a year of decline ahead for the equity markets.
|
| Until next weekend, have a very good week. Always remember that proper risk management is essential - don't fall victim to complacency just because the markets have seen much lower volatility over the past few months. There could be - and most likely will be - at least one more major leg down for general equities starting this winter, and volatility appears set to soon increase once again. |
|
