Since our previous Premium Update has been posted one day ahead of our normal schedule and thus the gap between updates is now a bit bigger, we believe you would appreciate an additional comment from us.
You might want to open the latest Premium Update:
http://www.sunshineprofits.com/premium_commentary/23-feb
and follow last week's charts as we comment on the most important developments.
The USD Index has been moving lower in the recent days and is now at its cyclical turning point, which means that its likely to move higher (at least to 80) in the coming days.
The general stock market is trading sideways within the target area that we mentioned in the previous updates. Nothing changed here, so stocks are still likely to decline from these levels - likely to 1325 or so in terms of the S&P 500 Index.
Gold, silver, and mining stocks (and also the rest of the precious metals sector) are significantly negatively correlated with the USD Index and significantly positively correlated with stocks - in the short term. This means that a move higher in the USD Index and/or a move lower in stocks will very likely translate into lower prices for precious metals and miners.
The GLD ETF is currently in the lower part of the target area that we outlined in the latest Premium Update. This means that even if it moves a bit higher from here (up to $175.5) it will not be an invalidation of the points made last Thursday (that betting on higher gold prices is quite risky at this time based on mixed signals coming from various sources). If GLD moves above the November 2011 high (approximately $175.5) and the breakout is confirmed then the situation will become quite bullish even if we don't see a meaningful correction (with GLD moving below $166) before that.
Speaking of GLD ETF - we cover it not only because it's an important proxy for the price of gold. The additional benefit of monitoring it is the insight coming from the analysis of volume. This time, the analysis of volume provides us with bullish signals as the volume that accompanies daily upswings has been bigger than the one accompanying daily moves lower.
The gold price from the Japanese perspective ($gold:$xjy ratio) topped close to the 14.5 level, which is slightly above the middle of the trading range - which is where we indicated it could top. Please note that the RSI indicator is now moving a bit lower after having moved above 80 level - something that we have seen only one time previously in the past few years - at the major 2011 top.
Gold from the non-USD perspective has not reached its target yet (slightly above 65 level in the $gold:UDN chart), but it's very close to it, so the situation is still not too bullish.
Silver has just moved above the area that we marked as a short-term upside target and it moved above the declining resistance line as well (please take a look at the SLV ETF chart for details). Generally, for this breakout to be confirmed, we would like to see SLV ETF to stay above the $35 for 3 consecutive trading days. Right now, we don't have a confirmation of the breakout from the price action itself, nor from other markets. Meanwhile, the cyclical turning point is quite close and based on that the odds of a local top being seen soon are quite high - please keep in mind that these turning points work on a "near to" basis, which means that we are already in the "affected territory" . In other words, the turning point is already a bearish factor. Moreover, please note that both: breakouts and breakdowns in silver can be tricky if they are not confirmed by gold and miners (remember the August 2007 "breakdown" followed by a huge rally?).
Gold stocks are barely moving higher today, which is a bearish signal compared with gold's and silver's strength. At the same time, the main stock indices are NOT declining today - which could be another explanation for the lack of real rally in the miners. There was no breakout in the mining stocks so far - in fact, the HUI Index did not reach the lower of our upside targets - 560.
Summing up the bullish factors are:
- today's strong rally in silver (moderately strong bullish factor in the immediate- and medium-term),
- volume in the GLD ETF (strong bullish factor in the immediate-term),
and the bearish factors are:
- bullish short-term case for the USD Index based on the current cyclical turning point (weak bearish factor for the short term),
- bearish short-term case for the general stock market (weak bearish factor for the short- and medium term),
- price and RSI levels in gold from the Japanese perspective (weak bearish short- and medium-term factor),
- the similarity between 2006 and today has not been invalidated (moderately strong bearish factor for the short- and medium term),
- the cyclical turning point in silver is close and silver has been moving up so far (weak short-term bearish factor),
- miners have been lagging gold and silver (weak short-term bearish factor).
Consequently, while the long-term situation for the precious metals market is bullish (we continue to believe that the long-term capital should remain in the precious metals sector), the short-term case is still too unclear for us to suggest opening long or short trading positions (we don't recommend betting on higher nor lower prices of precious metals).
Nonetheless, we will provide our downside targets, as we have been requested to do so. The downside target for GLD is $165 ($1,700 for spot gold), $32 for SLV ($33 for spot silver - and this is the least precise of the targets because of today's silver rally), and 500 for the HUI Index. Please note that these target levels are in tune with what we wrote in the summary section of the January 27th, 2012 Premium Update: http://sunshineprofits.com/premium_commentary/27-jan-0 . Moreover, please keep in mind that we may send out a buy alert before these price levels are reached for instance if one of our SP "extreme" indicators flashes a buy signal.
Naturally, we will provide much more detailed analysis (including charts) in this week's Premium Update (scheduled for Friday, March 2nd, 2012) and you will be kept up-to-date, should anything change before that time.
Thank you.
Sincerely,
Przemyslaw Radomski
