Gold is off its lows of the day but the yellow metal is still down $13 an ounce at $1,417 as of 7:05 am Pacific. The action in the CDNX this month has suggested to us that there’s an increased risk of a broad market sell-off or short-term weakness in the precious metals. This morning, John examines the technical health of the TSX Gold Index.
John: On Friday, the TSX Gold Index (SPTGD) opened at 399.22, rose to a high of 401.75, fell to a low of 396.59 and then closed at 397.29. It was down -0.44 (0.11%) on volume of 46.2 million shares.
Looking at the 3-year weekly chart we see that the Index has been trading within an upsloping channel since February, 2009. Between May and December, 2010, the trading pattern was an upsloping wedge which is a reliable bearish reversal pattern.
At the beginning of January of this year there was a breakdown from the wedge and between then and now the trading is consolidating within a symmetrical triangle. One has to be careful with a symmetrical triangle because it can break to the upside or downside with equal expectation. The most powerful breakouts occur when the trading is between a half and three quarters toward the apex of the triangle, so this could break in the next 3-4 weeks. If it breaks to the upside it should be accompanied by high volume to verify reliability. The symmetrical triangle is often a continuation pattern, meaning that its breakout will be in the direction of the previous move, in this case down. On the other hand we see that it is closely supported by the SMA(50) moving average so there is no clear indication in which direction the break will occur. The declining volume during the triangle formation confirms the consolidation.
Looking at the indicators:
The RSI is hovering around the 50% level during the consolidation – neutral.
The Chaikin Money Flow (CMF) shows that the selling pressure is increasing during the consolidation – bearish.
The ADX trend indicator has the +DI and the -DI entwined and the ADX (black line) trend strength indicator is falling, indicating the short-term trend is weak and neutral but the long- term trend is bullish.
Outlook: The long term-trend is bullish but the breakout from the triangle could be bearish for the short-term.
CDNX doing rounded top. Here we go – 1900 possible
Comment by david — March 28, 2011 @ 7:24 am
No way David ! Whether it be a round top or a square bottom (joking), we are not going back to 1900.
The first stock to fall back on my watch list this morning was GQC, surprised ? Anyway, if the unthinkable
happens & the index do fall back to 1900, i will be the first to admit that i was wrong, but today, it’s
window dressing, all or part ,before the quarter ends.
R !
Bert
Comment by Bert — March 28, 2011 @ 9:53 am
Well Bert, I honestly don’t have a clue but the volume looks like it will be very light today and the Venture has been in a decline all day (so far). I can see window dressing for mutual funds but for an investor’s portfolio in the current climate I would have thought there would be more going to a cash position – the volume just isn’t there not even for window dressing! Maybe it’s a response to the election that’s now thrown in with the rest of the turmoil. What I read from the recent weeks is that the gold juniors just haven’t performed this year and there is a reluctance to invest in the Venture because it is temporarily too risky. 🙂
Comment by Andrew — March 28, 2011 @ 10:16 am
Hello Andrew
The volume is a factor on the upside & the downside. Lot’s of volume on the upside positive ! Lot’s of
volume on the downside, negative ! The argument has been, not a lot of volume on the upside, so we are
going down, i will reverse that, not a lot of volume on the downside, so we are going back up. Time will
tell.
R !
Bert
Comment by Bert — March 28, 2011 @ 11:03 am