We’ve written about this before on this site – there is one indicator of future overall market direction that in our view is more reliable and accurate than any other indicator out there, and that’s the Venture Exchange. We challenge anyone to try and prove us wrong on that statement.
The CDNX, as everyone knows, is the Wild West of the markets. It is highly speculative and can be extremely volatile. It is made up mostly of resource issues.
Over the last three trading sessions, including today, the Dow Jones Industrial Average has dropped 552 points or 5%. The TSX is off 3.7%. The CDNX, however, is down only 2.7%, and interestingly moved in the opposite direction of the major markets this morning. After an early drop of 25 points to 1,534, the CDNX rallied back to 1,560 – erasing all of those losses – before settling at 1,550, down just 9 points on the day vs. the 217 drop on the Dow and the 126 point TSX loss.
The fact the CDNX has outperformed the major markets in this three-day slide suggests to us one thing: We’re seeing a normal pullback, which may now have run its course, and an overall market crash is simply not in the cards. We say that because if a “crash” were imminent, stocks in this market (which was up 91% in 2009) would be dumped first and the hardest. Even a sharp pullback in both gold and oil was not able to knock this market to its knees this week.
So while many people will fret and worry over the weekend about the “coming market crash”, we’re going to relax and enjoy a couple of wonderful days knowing full well that the sky is not about to fall. The CDNX has spoken and has told us so.
The action we’re seeing right now in the markets reminds us a lot of last October when many analysts were also warning of an imminent crash. At that time, the TSX fell slightly below its 100-day moving average, which it has now; the CDNX fell slightly below its 20-day moving average, which it has now; and the TSX Gold Index fell slightly below its 200-day moving average, which it has now. Then the markets snapped back with a vengeance.
The primary trend is still up, folks, given the parabolic uptrend the CDNX is still in, and so far we have not seen the technical deterioration necessary to change that view.
As far as gold is concerned, there are two scenarios: Gold is either bottoming out at current levels with a successful re-test of the December lows ($1,075), or it will fall to an area of huge support around $1,025. In both scenarios we see gold eventually taking off on another monster run all the way to at least $1,350 and perhaps $1,500 this year.
The fact that gold is currently hovering around its December lows, and the CDNX is substantially above where it was at any point last month, is further evidence that gold’s next huge move is going to be to the upside (yes, we could see a head fake to $1,025 first, but we’re not counting on it).
With U.S. Congressional elections coming up in November, we believe the Obama administration will do everything in its power, rightly or wrongly, to stimulate the economy (Recovery Plan #2 coming up) and keep interest rates low which will maintain the commodities carry trade. Robust growth in China continues which is hugely important to commodities.
We hope you enjoy a great weekend. We have several articles in the works for next week on specific companies that we believe you’ll find most interesting, and of course on Sunday we’ll be posting our regular Week In Review And A Look Ahead feature.
