BullMarketRun.com

TSX Venture Exchange and Gold

While volume tailed off last week, the Venture found strong support as expected at 680 and snapped a 3-week losing skid by adding 2 points to close Friday at 684.  The Venture firmed up slightly after Wednesday’s Fed statement and comments from Janet Yellen that combined to pressure the greenback while giving Gold a lift to its highest level in a month.

Summer officially begins this weekend, but what can prevent the “summer doldrums” on the Venture is some exploration excitement with results of a magnitude that would create much-needed fresh wealth in the sector and restore investor faith and confidence.  Last week, NexGen Energy (NXE, TSX-V) hit a new all-time high of 81 cents with a stellar intersection (56.5 m@ 11.55% U3O8 in drill hole AR-15–44b) from its emerging world class high-grade Uranium discovery in Saskatchewan’s Athabasca Basin.  NXE traded over 14 million shares on the Venture and is poised for a very active and perhaps dramatic summer.

Major success on other fronts in Canada and elsewhere is needed.  British Columbia will be a key jurisdiction to watch with rigs turning or about to turn in several areas of the province. In the prolific Sheslay district, Doubleview Capital’s Hat Property has rapidly growing possibilities while Garibaldi Resources‘ (GGI, TSX-V) Grizzly Project has “new discovery” written all over it.  Sunday, we’ll expand on the exciting Doubleview situation and issue a challenge to President and CEO Farshad Shirvani at the same time.

Interestingly, despite the dramatic late 2014 sell-off and the added difficulties the junior resource market has faced since, the Venture has been able to hold critical support at 680 on a monthly basis.  This support, as you can see in the chart below, is now more solid than ever with the Index beginning to move up again off its uptrend line (coinciding with Fib. support) from the December low.

6-Month Daily Venture Chart

What’s encouraging about this chart is the continued strong support and the bullish ascending triangle.  The SS indicator is now advancing strongly after touching extreme lows like it did in mid-March and mid-December.  Going into the summer, the Venture’s current technical posture is such that the chances of a breakout above 707 exceed that of a breakdown below key support defined by the Fib. band between 654 and 680.

Exact timing of a breakout, however, is the issue, and what would the catalyst be?  The junior resource market needs a boost from discovery excitement as well as higher commodity prices.

So the Venture’s upside potential, looking ahead through Q3, definitely appears to exceed its downside risk, a very different scenario than the one that existed last September when the Index simply fell apart technically, driven largely by the collapse in Crude prices and the record surge in the greenback.  Yes, the resistance just above 700 is frustrating but the Venture has also been building a strong base this year.  Non-resource issues of course have performed the best since last September.  But quality resource stocks could pick up strongly over the last half of 2015.

U.S. Dollar Index Update

A key market to watch, of course, is the U.S. Dollar Index which rallied during the last half of May – certainly not unexpectedly after it sold down to temporary support.  It has since pulled back again.  The Dollar Index faces strong resistance in the mid-to-upper 90’s given the double top pattern that formed in March and April, in addition to some other bearish indicators.  As long as a weak to neutral trend continues in the greenback over the coming months, the risk factor is limited at current levels for the Venture given the inverse relationship between the two. 

The Dollar Index clearly lost momentum as soon as it fell below an uptrend line in late April going back to the start of last summer’s rally.  As expected, the Index rallied back to the top of the uptrend line (98) where it reacted at fresh resistance.  A declining 50-day SMA, currently just above 96, is applying further downward pressure on the Index.  Ultimately – and this may take a few months to play out – the Dollar Index may have to test Fib. support around 88 before it commences a possible new uptrend.  Much will hinge on Fed policy and how the U.S. economy behaves.

The current consolidation in the Dollar Index is a healthy development given the record run it made over such a short period.  Technically very overbought RSI(14) levels peaked in March.  A mirror image of that could unfold at some point during the 2nd half of this year.  There is still no shortage of greenback bulls, just like there was no shortage of Gold bulls even a year after the metal hit an all-time high.

Gold

Gold rose for the 2nd straight week, adding $19 an ounce to finish at $1,200.  A more dovish than expected Fed statement gave Gold bulls some added confidence, but bullion’s immediate and not-so-easy challenge will be to overcome a band of resistance between $1,200 and $1,210, and then even stronger resistance in the mid-$1,220‘s.  On the bright side, seasonality factors will soon be in Gold‘s favor as Q3 traditionally is the metal’s strongest quarter of the year.

On this 2.5-year weekly chart, which has proven to be a very reliable guide, Gold continues to meander within a downsloping flag.  A breakout above or a breakdown below this flag will really be significant.  Important chart support exists at $1,150.  If this level fails, the first line of support is at the bottom of the flag (around $1,100).

Encouragingly, RSI(14) has continued to climb a gently sloping uptrend since last fall.

After declining $1.21 the previous 2 weeks, Silver found its footing and added 12 cents to close at $16.08.  Copper slipped another 12 cents to $2.56.  Crude Oil lost 57 cents a barrel to $59.37 while the U.S. Dollar Index slumped nearly a point to 94.06. 

The “Big Picture” View Of Gold

As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been driven by both the Fear Trade and the Love Trade.  The transfer of wealth from west to east, and the accumulation of wealth particularly in China and India, has had a huge impact on bullion and will continue to support prices.   Despite Gold’s largest annual drop in 3 decades in 2013, the fundamental long-term case for the metal remains solidly intact based on the following factors: