Weekly Market Summary

Full Analysis & Charts are here.

Introductory Summary:

• 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.
• When gold reached our short-term target of about $1200, we closed our gold and silver futures trading positions.  We then looked to reenter our long gold and GDXJ junior gold miner trading positions whenever gold traded close to its 10 week (50 day) moving average, and we did so 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, given recent action, a deeper correction to between $1034 and $978 looks likely, and we closed our long gold and GDXJ trading positions when gold broke $1120.
• We also closed most of our long stock positions when the S&P 500 index broke 1120, and are now only long JIN.TO and AUN.V while short GME, IYR (real estate trusts), and S&P futures contracts.
• U.S. and World equity markets are presumably still in multi-year downtrends.  The S&P validly broke the 300 day (65 week) moving average and temporarily broke above the 2007 to present downtrend line (in dark blue) before plunging to close well below it again just two weeks later.  The S&P recovered 53 percent of the 2007-2008 decline (the halfway point is S&P 1120), and corrective moves tend to most often top out after retracing between 50 and 62 percent of the previous move (62 percent would be about 1230).  We believe a second phase down likely has begun, though it could turn out to be no more than a major correction as long as there is no weekly close below 940.  Likely support areas for the S&P are seen at 1080-1060, 1000-920, and 800-760. A weekly close below 760 would argue for 666 being the next target.
• Crude oil broke major resistance at $78 – $80 ($79.86 was the significant high set in 2006) during the first week of 2010, but turned around and cleanly broke back below the same level a mere two weeks later.  Failed breaks of important levels usually lead to significant moves in the direction opposite of the original breakout.  In other words, it is now likely that oil will see a significant correction (or more), potentially with an initial fall to the lower orange channel line around $65 to $63.  Should the lower channel line be broken on a weekly close, we could be in for a plunge similar to that in 2008 – 2009.  Only a break above $85 would reliably reconfirm the larger uptrend.
• The $CRB Index broke major resistance at the 284-285 level (the 1983 and 1984 major highs and 2007 significant low) during the first week of 2010, but turned around and cleanly broke back below the same level a mere two weeks later.  Failed breaks of important levels usually lead to significant moves in the direction opposite of the original breakout.  In other words, it is now likely that most commodities will see a significant correction (or worse) with the $CRB index potentially seeing an initial fall to somewhere around 250.  If 245 breaks, we could be in for a plunge similar to that in 2008 – 2009.  Only a break above 300 would reliably reconfirm the larger uptrend.
• For a long time, we 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 breaks down in the next few months 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 this year (with a corresponding rise in interest rates).
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