Dec. gold dropped over 30 dollars on the opening this morning. Looking at the daily chart I note that GLD (a proxy for gold) is still holding above its rising bullish trendline. To violate that trendline, GLD would have to close below 128. That has not happened, at least not so far. Note RSI is in the heavily overbought position. And RSI has been there for a few months.
“No tree grows to the sky.” Gold has risen an astounding ten out of the last eleven weeks (see weekly chart below). Therefore, it’s only natural that traders are betting for a correction. For this reason, gold is down almost every night in the after-market as traders ready themselves for the long expected correction — the correction that never seemed to come. However, the fact is that gold is heavily overbought and the dollar is extremely oversold. I’m thinking that the resolution of this puzzle could be an extended period of consolidation in gold, in other words, a long sideways movement, preparatory to the next upward leg in gold. Consolidations often start with a sharp break, such as the one we witnessed today.
Nasty day with almost everything down, down and down. My PTI was down 6 leaving it bullish by 28 (the high was bullish by 39). The Dow held above 10900, which was hopeful, but then we have Wednesday through Friday to think (worry) about. Today’s internals weren’t pretty. On the NYSE 570 issues closed higher, 2484 closed loser. There were 87 new highs and 7 new lows. Down volume was 90% of up + down volume. So it was a 90% panic type day. Normally, after a 90% down-day, there’ll be a two to seven day automatic rebound in stocks.
The oversold Dollar Index rose 1.28 to 78.21. Treasuries were a bit higher. Dec.gold plunged 36.10 to 1336, but still holding above 1300 (see charts above). Dec.silver was down 0.63 to 23.78. Jan. platinum was down 20.70 1677.60. Everything in the precious metals universe was down as the dollar rallied.
What does it all mean? Honestly, it’s too early to tell. But I will say this; today’s dreadful action is not going to help consumers’ sentiment. Think about that, Misters Obama and Bernanke. Anybody want to buy anything?
Comment — I take it that my subscribers are out of stocks, so all we have to worry about is gold and the world of precious metals. Gold has relative strength working for it — and what do you have, sir?
The biggest question of the day (Russell’s day, because it doesn’t seem as if anyone else is taking it seriously) is the dying dollar. While this is going on, here is an up-dated chart of the Dollar Index. Thus, you don’t have to take my word for it, you can just study the chart (ugh). Note that we are about to receive a “death cross” on the dollar as the 50-day MA drops below the 200-day MA. – Richard Russell One of the best values anywhere in the financial world at only a $300 a year, to get his DAILY Dow Theory Letters subscription HERE