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Gold and Dollar
by Carl Swenlin
February 26, 2010
Gold switched to a neutral signal on January 29, but it looks as if a new Trend Model buy signal will be generated soon. Below you can see that the price index recently broke out of a descending wedge pattern (as expected for that pattern), then, after a pullback toward the break out point, it has begun to move higher. The buy signal will be generated when the 20-EMA moves up through the 50-EMA, something that is very close to happening.
Note also how the PMO (Price Momentum Oscillator), while not terribly oversold, has bottomed in the area that it did last April, when the big rally to 1200 began.
It is always a good idea to step back and view prices in a longer-term time frame, so the weekly-based chart of gold is shown below. We can see the strong rally up through the long-term resistance at 1000, followed by a two-month pullback toward 1000, an area that now forms strong support. It is also notable that the correction was stopped by the long-term rising trend line, which appears to be supporting the new rally.
In relation to gold, it is also usually a good idea to look at the U.S. dollar chart to see if currency weakness will lend support to a rally in gold. While the dollar has been showing good strength foe about three months, we can see that it has reached the top of a rising trend channel, and the PMO is somewhat overbought and has generated a crossover sell signal. This leads me to believe that the dollar will experience a correction soon and will support rising gold prices for probably several weeks.
Bottom Line: Bullish price action in gold and expected dollar weakness point toward another rally in gold. I don't want to stick my neck out with a price projection, but, IF prices can move to the top of the rising trend channel drawn on the weekly chart, 1400 is a reasonable target. That's a big "IF".
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Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
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2009 TIMER DIGEST RANKINGS FOR DECISION POINT
#9 Intermediate-Term Stocks (52-Weeks) (TD Index 129.36 Vs. SPX 123.45)
#8 Intermediate-Term Stocks (5 Years) (TD Index 147.81 Vs. SPX 92.01)
#18 Bond Timer (*TD Index: 87.7 Vs. Bonds 83.86)
#5 Bond Timer (10-Years) (*TD Index: 127.25 Vs. Bonds 127.51)
#9 Gold Timer (TD Index: 115.30 Vs. Gold 124.00)
#3 Gold Timer (3 Years) (TD Index: 181.56 Vs. Gold 169.92)
#3 Gold Timer (10 Years) (TD Index: 322.74 Vs. Gold 375.51)
#6 Long-Term Timer (2 Years) Stocks (TD Index 136.41 Vs. SPX 75.94)
#7 Long-Term Timer (3 Years) Stocks (TD Index 141.22 Vs. SPX 78.62)
#2 Long-Term Timer (5 Years) Stocks (TD Index 165.27 Vs. SPX 92.01)
#5 Long-Term Timer (10 Years) Stocks (TD Index 162.51 Vs. SPX 75.90)
2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers and the benchmark index are assigned a starting TD Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
Nothing herein should be construed as an offer or solicitation to buy or sell any security. Past performance does not indicate future results.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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