Market Comments

Gold & Silver 

Last week we stated “notice the cluster of prices around the 570 level back in the beginning of February. Gold will soon have to get above this resistance level if its upward rally is to stay alive. We are not of the opinion that gold must make a new high to remain in a strong bull market; however, it must soon make up its mind, which way it goes from here.”

Gold made up its mind falling over $23 dollars to 545.91 (continuous daily chart price) for a loss of over 4% for the week. Silver faired a bit better loosing 2.4%. The precious metal stocks took it on the chin with the HUI down 8.29%. The gold stocks fell nearly twice as much as the pog – suggesting that more downside action may be forthcoming.

The following charts are from my dear friend and chartist extraordinaire Alexandra Siena. We are deeply indebted to her for a stellar contribution .

 

GLD/HUI RATIO

[Chart Courtesy of Alexandra Siena]

 

The above GLD/HUI ratio shows that GLD has been leading the HUI since it touched the lower regression line. As we said above – this is not a good sign. However, note that the ratio has gone back up to the upper line and appears to be beginning to reverse. If it does, and if it continues, it will be a positive divergence.

For now, we wait and watch for the outcome. First, it must reverse. Second, it needs to continue. Third, it must be determined that if it does occur – whether it is of a short term or intermediate term duration.

 

HUI Index

[ Chart Courtesy of Alexandra Siena]

 

The above chart illustrates a head and shoulders formation. However, the index is oversold and rsi has turned up, indicating that the immediate downside price action may be changing.

Once again, it remains to be seen if the tide has turned, and whether it is of a short term or intermediate term duration. Presently we favor a short-term bounce compared to an intermediate term trend change, as the following charts suggest.

 

HUI Point & Figure

 

[Chart Courtesy of Alexandra Siena]

 

The above chart projects a possible downside target of 272. The 50 dma is presently at 309.82 and the 200 dma is at 242.70. The HUI closed at 292.60. If 272 is violated the odds favor a trip down near the 242 level.

 

XAU Index Point & Figure

 

[Chart Courtesy of Alexandra Siena]

 

The chart above shows a price projection down around 110. The XAU closed at 126.80.

The 50 dma is at 138.99. The 200 dma at 111.72. Even if any of these levels occur, the long-term bullish trend remains in affect as long as a higher low occurs.

We beg to differ with Mr. Gartman whom seems to be of the opinion that a higher high was mandatory at this time. In our opinion if higher lows occur, then higher highs will follow in due time.

 

 

XAU Index Daily

[Chart Courtesy of Stockcharts]

 

Bonds

Two-year US Treasury yields gave up 1.5 bps to 4.73%. The Five-year yields were up 6 bps to 4.77%. 10-year Treasury yields shot up 8 bps to 4.76%. The Long-bond closed at 4.75%. The bond market remains mixed – with the five-year yield the highest.

 

Stocks

The stock market continues to float upon a sea of liquidity, however, cracks are beginning to appear in the underlying internal strength indicators. The chart below shows a break below the 50 dma and further downside likely.

 

Nasdaq Composite Point & Figure

[Chart Courtesy of Stockcharts]

Commodities were down all around with the CRB loosing 3.72% and oil down over 2%. As we have mentioned regarding oil – the geo-political events in Iran, Iraq, and Nigeria have been lending support, yet the price is down. Caution is warranted.

 

Currencies

The dollar was up 1.4% for the week. The Canadian dollar fell 2.3%, and the Japanese yen was down 2.2%. M3 money supply was up $28.3 billion to a record $10.361 Trillion.

China’s foreign-exchange reserves were up $26.8 billion to $845 billion. Not surprisingly, US marketable securities held by the NY Fed in custody for foreign and international accounts rose $11.9 billion to a record $1.560 Trillion.

The chart below clearly shows the trend of where a great amount of the money the Fed is creating is going.

 

 

China’s Foreign Exchange Reserves

[excluding gold]

 

We thought we would end this week’s market wrap with a couple of economic charts that tie in with the above exploding foreign exchange reserves of China.

 

US GDP Rate of Change

[Chart Courtesy of the US Bureau of Economic Analysis]

 

Notice the significant drop off in the last quarter of 2005.

 

Disposable Personal Income And

Real Consumer Spending

[Chart Courtesy of the US Bureau of Economic Analysis]

 

Notice not only the declining trend in disposable income, but also the fact that spending is exceeding the rate of income. Not the best of trends to say the least.

 

Current Account Balance

[Chart Courtesy of the US Bureau of Economic Analysis]

 

The current account balance appears to be misnamed, as it is far from balanced. We will end with the most important chart of all – as it alludes to who is buying and thus owning America.

 

Foreign-Owned Assets in the U.S.

U.S. Net International Investment Position

[Chart Courtesy of the US Bureau of Economic Analysis]

 

Conclusion

Many markets were down for the week. Interest rates continue to rise. The strongest past performers (gold, silver, and the precious metal stocks) were down the hardest, as were commodities and oil.

We have noticed the propensity for several markets to shoot up one week, and to go back down the next. This suggests that hot money is flowing in and out of markets looking for a quick fix – not the most stable of situations.

The sea of liquidity the Fed and other central banks have created is flooding the world with imbalances that are starting to come home to roost. The rest we will leave up to the reader’s discretion, and will as they say – be history.