CDNX and Gold
The CDNX had another powerful week – up 23 points to 1480 – and an assault on resistance around 1500, where a rising 200-day SMA and a declining 100-day SMA have converged, appears imminent. The CDNX ended a nasty 2-month correction (within an ongoing bull market) of 20% July 6, bottoming at 1343, and since then has jumped 10%. Given various technical clues, historical patterns and the strength of this market over the past 6 weeks, there is little doubt in our view that the CDNX is in the midst of a very strong move that could easily take it to a new 52-week high prior to year-end. The current move could accelerate quickly once the Index convincingly gets through 1500 – the exact timing of that event of course is uncertain, and the first attempt may not even be successful. But it’s highly likely to occur, given overwhelming evidence, and by sometime next month at the latest. This bodes well for the overall markets and also for Gold (it’s also interesting to note that China’s Shanghai Index hit a 3-month high this past week). The CDNX has significantly outperformed the broader markets as well as the TSX Gold Index since early last month – while the Venture is up 10% since July 6, the Dow and the TSX are each up 5.7% while the Nasdaq is ahead 4.9%. The TSX Gold Index has gained 7% since July 6, so we have seen a reversal since early last month in the performance of the CDNX relative to the Gold Index. With the very speculative CDNX such a proven accurate leading indicator, its current bullish state bodes well for the broader markets and Gold and casts serious doubt on near-term market crash predictions being made by a considerable number of analysts and newsletter writers at the moment. And a great contrarian piece of evidence that the bulls will enjoy came in today from the New York Times which reported that American investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first 7 months of this year (according to the Investment Company Institute, the mutual fund industry trade group). If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked. Market bulls have to love that kind of news. The CDNX is speaking loud and clear – this is a time to be bullish. Gold enjoyed another good week, up $13 an ounce to $1,228. We see the floor for Gold at $1,200, give or take 1%, and of course there is heavy resistance from $1,250 through to June’s all-time high in the $1,260’s. With the bulls clearly in control right now, and Gold now entering a period of traditional seasonal strength, it seems inevitable to us we’ll see the yellow metal at new all-time highs this fall (our prediction is around $1,350). One final pullback to just below $1,200 has to be considered a possibility prior to a successful breakout to new highs.
