BullMarketRun.com

TSX Venture Exchange and Gold

Based on historical data going back 15 years, and the way the Venture has traded since October in relation to the commodity sector, there’s a high probability in our view that last Thursday marked the December low at 510 in a healthy re-test of the August 24 all-time low (intra-day) of 509.  That means there is no time to waste in terms of pouncing on the best opportunities in the market right now as the Venture is clearly signaling that it’s going to rally significantly through December, January and February in a fashion that’s at least consistent with historical averages.

Check the bottom of this report for 50 companies (top 50 opportunities) to consider (Venture and TSX) at a highly favorable point in the market. 

As expected, Gold has started to recover out of unusually oversold conditions in November, brought on by the growing belief that the Fed will act on December 16 to raise interest rates for the first time in nearly a decade.  Given the “window” that she now has, and the risk of losing all credibility in the markets, Fed Chair Janet Yellen must pull the trigger at the upcoming FOMC meeting.  This should actually be positive for Gold and the commodity complex because it will remove a key dynamic – speculation of a pending rate hike – behind the record run in the U.S. dollar over the last year-and-a-half.  Everyone who has wanted to sell Gold and commodities simply because the Fed is finally going to start raising interest rates (very modestly and gradually) has already done so.  Friday’s $25 jump in Gold was an indication of that after the metal hit a 5.5-year low of just under $1,045.

“There is a good chance that the dollar has at least temporarily topped,” commented Adrian Day, president of Adrian Day Asset Management.  “The modest rate hike expected from the Federal Reserve is not meaningful for Gold and has been more than discounted in any event,” he added.

Bill Gross, former leader at PIMCO’s $270 billion Total Return Fund, made this call back on November 6:  “100 percent that they go in December and then try to tamp it down with mild, gradual language that will keep the dollar from strengthening even further.”

In what may have been an example of central bank coordination with regard to currencies and policy announcements, Mario Draghi dealt the dollar bulls a blow Thursday, and prevented the greenback from breaking out, when he announced an ECB decision that fell short of expectations on the stimulus side.  There’s still a monetary policy divergence between the ECB and the Fed, but it’s not as wide now as many traders had expected.  The euro enjoyed its biggest one-day percentage gain Thursday in nearly 7 years, giving Yellen some extra room to make her move.

Given obvious weakness in the U.S. manufacturing sector, plus stubbornly low inflation, the Fed can’t be keen on the possibility of seeing the greenback explode further to the upside.  So Yellen will finally get a rate hike out of the way but will likely use language that will attempt to keep the dollar in check.

Venture 4-Month “Awareness Chart”

Repeatedly, the Venture has successfully tested RSI(14) support at 30% since the end of September, even in the face of major selling pressure in commodities from mid-October through the end of November.  All the more reason to believe that support at the August low will hold.  What’s also encouraging is that the Venture strongly out-performed commodities during the last 2 months, a divergence that typically indicates a near-term pattern change.

The Venture “December-January” Effect

This table below is important as it shows that 40% of the time since 2000 (6 years out of 15), the Venture’s December low has occurred during the first 8 days of the month.  On average in those 6 years, the high the following month came January 13.

Keep in mind, the Venture has posted average monthly gains for December, January and February of 4.5%, 4.3% and 4.4%, respectively, going back 15 years.  There’s no better 3-month period for this Index, so now is the time to be positioned to take advantage of that seasonal strength.

Dollar Index 9-Month Daily Chart

Dollar bulls suffered a setback last week, but they may not give up without a fight.  What’s important to watch for is whether the Dollar Index can hold support at 98.  The key range at the moment is from 98 to chart resistance at 100.

The long trade in the dollar has proven to be very profitable since the summer of last year, thanks to speculation on the timing of the first rate hike in nearly a decade, but what happens when the news is out?  Many traders/investors may decide to cash in their chips and go to a different table, especially if Yellen delivers a rate hike but couches it with dovish language.

The Dollar Index faces very strong RSI(14) resistance at 70% as shown on the chart below.  During its latest move, the Index wasn’t able to overcome that resistance, perhaps a sign of weakening momentum.

Gold

Gold enjoyed its first weekly advance since October, climbing $29 an ounce.  Most of that gain came Friday when bullion shot up $25 to close at $1,086.

All signs (technical, sentiment, short positions, etc.) have been pointing toward a turnaround in Gold and Gold stocks, which is why we recently encouraged subscribers to take a contrarian view and go long on the double-leveraged HGU around the $3 level ($15 post-consolidation).  The smart-money commercial traders gave a screaming buy signal on Gold by dramatically reducing their net short positions, while the metal last week also hit the bottom of a downsloping channel on this 2.5-year weekly chart – consistently a major buy signal since late 2013.

It’s certainly possible we haven’t yet seen the final low for Gold in this cycle.  However, for now at least, short-term momentum is in bullion’s favor, and a test of chart resistance at $1,150 appears likely over the next month or two.  Some backfilling could occur in the days ahead, after Friday’s sharp advance, but a bullish trend has started.

Gold 6-Month Daily Chart

This 6-month daily chart demonstrates very well the extent of oversold conditions that emerged in November, and how sell pressure is rapidly declining.  Important Fib. levels range from $1,080 to $1,160.

Last week’s $1,045 low should definitely hold going into 2016, given bullion’s current technical posture, so the risk-reward ratio at the moment is deemed to be highly favorable.

Silver jumped 35 cents last week to close at $14.55.  Copper added 2 pennies to $2.10.  Crude Oil slipped nearly $2 a barrel to $40.14 on supply concerns, while the U.S. Dollar Index fell nearly 2 points to finish at 98.25.

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, and current weakness, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance):