CDNX S&P/TSX Venture Composite Index Has Major Breakout During Final Week of 2009

Introductory Summary:

  • When gold reached our short-term target of about $1200, we closed our gold and silver futures trading positions.  We have since been looking to reenter our long gold and GDXJ junior gold miner trading positions whenever gold traded close to its 10 week (50 day) moving average (currently around $1117), and we did when gold entered our target range of $1115 to $1080.  We keep our long term investment position in gold at all times, but the odds absolutely did not favor maintaining our long trading position when gold was stretched about as far above its 10 week moving average as it normally ever gets.  However, at this point, odds again favor holding a long trading position as the short-term correction in gold likely has hit bottom or soon will do so.
  • We are long a few select stocks – JIN.TO, AUN.V, UFUN.TO, OIH, MOS, POT, and UAUA while short IYR and ITB (real estate trusts and homebuilders).
  • The CDNX S&P/TSX Venture Composite Index is composed of small-cap companies, most of which are involved in the mining and energy industries.  The index broke below the 2000-2002 lows in late 2008 (refer to chart further down), then successfully broke back above those lows, and has – in the final week of 2009 – broken cleanly above both the year 2000 major high and 2004 significant low.  If it holds above the 1400 level, it is likely that mining and energy stocks in general will rally further – at least until the next significant resistance area between about 1900 and 2000 is reached.  This is a major development for mining and energy companies as it increases the odds that recent breakouts in uranium miners, oil sands producers, and base metal miners are genuine.  Furthermore, it improves the odds that the recent and fully anticipated correction in gold, silver, and precious metal miners soon will end and lead to rallies to new highs over coming months.
  • U.S. and World equity markets are presumably still in multi-year downtrends.  When the S&P 500 Index validly broke the 300 day (65 week) moving average, we stated that this indicated the move up would continue higher.  It then pushed into the next significant resistance range from 1070-1140, and recovered almost 50% of the 2007-2008 decline (the halfway point is S&P 1120), which is approximately where corrective moves tend to top out.  We believe a significant correction or a second major phase down is likely to begin at some point during the winter, and we may short the S&P futures if the S&P has a surge up toward 1140.  The Nasdaq Composite is about 5% below likely massive resistance around 2400.
  • Of great long-term significance, gold successfully broke out of a 19 month long base when it had a weekly close at $1048.  Gold now has expected major support between $1033.90 and $978.  A weekly close below $970, while not expected, would indicate a failed breakout. The short-term correction in gold is likely either complete or soon will be around $1080 or higher, and we expect it to move much higher over the coming months and years.  Only a weekly close below $1080 would make us favor a deeper correction toward $1033.90 – $978.
  • Increasing the odds that the major bull market in oil that began in 1998 has resumed is the fact that the 10 week average (green) has crossed the 43 (blue) and 65 (red) week moving averages to the upside. From 1999 to 2008, that always indicated a resumption of the secular uptrend.  If crude oil breaks $80 by at least 1 percent on a weekly close, a new major uptrend is very likely underway. Should oil have a weekly close beneath the long term moving averages, prices could decline anew.
  • The CRB Commodity Index has confirmed it is likely back in a primary uptrend as its 10 week moving average has, as with crude oil, also crossed the 43 and 65 week moving averages to the upside.  The CRB Index is near an almost perfect setup for going long.
  • We’ve long expected major support for the U.S. Dollar Index around 74, and the dollar turned up almost precisely from that crucial level.  Our likely target has been the 77.69-82.07 area, and the dollar is now pushing up against the bottom of that range.  A top could be seen anywhere in that range, and only a weekly close near 83 or better would make us expect a much larger, longer-lasting rally to unfold.
  • Long-term U.S. Treasury Bonds have been declining toward critical support between 114 and 112.  If 112 breaks on a weekly close, significantly lower prices (and higher interest rates) are likely on the way for the next several years.  For the secular uptrend in bond prices (downtrend in interest rates) to remain in force, a bottom needs form near present levels.  So either the long bond soon breaks down and long-term rates go significantly higher (and, as a result, mortgage rates too), or we get at least temporary relief with bonds rallying back toward resistance and long-term rates falling.  Given the amount of borrowing the Federal Government is planning to do over the next several years, odds appear to strongly favor the scenario of a major breakdown in bond prices (and a corresponding rise in interest rates).
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