It’s probably a good contrarian sign that some analysts have turned very bearish on the markets. Clive Maund, who we follow closely and have deep respect for, actually put out an article today raising the possibility of a “Black Monday” tomorrow and a severe market meltdown right across the board.
In the article we posted yesterday, we examined how the action in the CDNX does not support such a bearish view – in fact, quite the contrary. We have consistently used the Venture Exchange as our #1 and most reliable tool to guage the markets overall and therefore achieve superior returns. What the CDNX is telling us right now is that the primary trend in precious metals and commodities is up, and this is a time to be buying into weakness. It is truly remarkable that while gold is down 11% over the past six weeks, the Venture Exchange is actually up 84 points or nearly 6%. This divergence is extremely bullish.
Let’s go back to July of 2008 to demonstrate just how reliable the CDNX tool is and how it actually predicted the horrendous crash that begin that summer.
We saw another divergence in July, 2008, but this divergence was a very bearish one. While gold was going up over the first half of July (from $930 to $985, and while oil was hitting new highs), the Venture Exchange was going in the opposite direction and actually fell 12.5% in the first 10 trading sessions of July. This was a very bearish negative divergence. As the month progressed, the Venture fell below key support around 2,300 and it was game over from there – the CDNX was saying that the commodities run was finished and that there was major trouble ahead. For the month of July, 2008, the CDNX was down 16%. The TSX was off just 6% for the month while the Dow Jones Industrial Average was actually unchanged. Gold finished July at $930 and of course plummeted in August.
And just in case you think the TSX Gold Index is a reliable indicator, it too surged higher with gold prices through the middle of July, 2008. The CDNX was going down and the TSX Gold Index was going up. Those investors who read the signs the CDNX was giving saved themselves a lot of money. Currently we’re seeing the opposite situation – the TSX Gold Index has been going down while the CDNX has been surging (or significantly out-performing). Our money is on the CDNX. This is the time to be a buyer, not a seller.
As we stated in yesterday’s article, the CDNX is always ahead of the curve. Given the out-performance of the CDNX vs. the major market Indexes in addition to gold and oil recently, we can only conclude that we are not about to witness a crash. In fact, we’re anticipating just the opposite – significantly higher commodities prices and a move in the CDNX to between 1,950 and 2,350.
The CDNX remains firmly in a parabolic uptrend and we are buyers into weakness until we see clear signs of technical deterioration – the first indication of which would be a declining 20-day moving average.
