John: Periodically we take time out from analyzing the daily movements of our stocks to review the “Big Picture” of market indicies and precious metals. Today we look at Gold.
As I have stated before, the daily movements often give false indications when taken out of context of a much longer period chart. Gold (Continuous Contract) opened last week at $1,414, climbed just above $1,430 to a new all-time high, retreated sharply to a low of $1,370 and then closed Friday at $1,386 for a loss of $28 (-1.98%) for the week.
Looking at the 3-year weekly chart above, we see that in October, 2008, Gold briefly moved down below $700 an ounce. From there it rose methodically to reach the $1,000 level by February, 2009. It was during this move that 2 significant technical events occurred. The first was when the price moved up through $800 in December, 2008, the RSI moved above 50% – this was the first bullish sign following the 2008 correction. The second event was when the RSI bullish move was confirmed in January, 2009, when the +DI (green line) of the ADX trend indicator crossed above the -DI (red line), showing the trend was now indeed bullish.
From the high of $1,000 the price retraced to around $870 where it found support at the weekly SMA(50) moving average. This is a classic example of how to determine the correct “close supporting bullish moving average“. The definition here is that this moving average is one that if violated to the downside provides serious warning that further downside is probable. Note how the price broke above the SMA(50), rose to $1,000 and then retraced and bounced off the SMA(50). This was the start of the upsloping trend channel which has now been in place for 2 years.
From Oct. 10 to now I have drawn a mini-channel which incorporates the last 11 weeks of trading. We see there is a divergence between the price and the RSI during this period but note that the overbought condition that existed 2 months ago is now unwinding even though the average price has continued to rise. This mini-channel is now between a low of $1,360 and a high of $1,450.
Looking at the indicators:
We see the RSI has remained bullish (above 50%) for 2 years. Any declines bounced off the 50% level and the price did not violate the green supporting trendline. The overbought situation is gradually unwinding and is expected to continue to do so for the foreseeable future.
The ADX trend indicator has been constantly bullish since Jan., 2009, and has the +DI (green line) at 32 and above the -DI (red line) at 10. The ADX (black line) trend strength indicator is still climbing at 42, showing the trend strength is continuing to increase.
The Slow Stochastics has the %K (black line) above the %D (red line) at 81% and 77%, respectively. They are unwinding from an overbought situation.
Outlook: This historical bull market in Gold remains firmly intact. The trend strength is very strong and the RSI overbought condition continues to unwind without a drop in the average Gold price – very bullish.
