TSX Venture Exchange and Gold
The Venture continues to out-perform commodities which is particularly encouraging as this is the time of the year when the opposite usually occurs with tax-loss selling applying pressure on the Index. For the week, the Venture actually gained 1 point, snapping a 5-week losing skid, despite Gold’s nearly 2% weekly decline and slightly negative broader equity markets.
With one more trading day left in November, the Venture is off 3.7% for the month but this compares very favorably to the 7.4% drop in Gold, the 10.3% plunge in Copper, and the 10% dive in Crude Oil. What the Venture seems to be saying is that this latest sharp commodity sell-off is nearing the point of exhaustion, and conditions are ripe for the start of a significant rally in the near future – likely within the next couple of weeks, commencing immediately before or after the critical Fed meeting Dec. 15-16.
Keep in mind, the Venture enjoyed its best October in 4 years and support at the August low of 509 appears almost certain to hold given the trends we’re seeing. That sets up a bullish scenario for the Venture going into year-end. This market will take the path of least resistance, so a repeat of the late 2013/early 2014 pattern appears to be in the works. That means investors would be wise to scoop up bargains now and also focus on the current leaders in this market given an important fact – based on historical data, December, January and February are the best 3 months of the year for the Venture with an average combined gain of just over 13%.
A 10% to 20% jump in the Venture from current levels by the end of February would mean multiple opportunities for doubles and triples in certain individual stocks. That’s how you can turn $10,000 into $80,000 on just 3 astute trades:
Stock “A”: $10,000 doubles to $20,000
Stock “B”: $20,000 doubles to $40,000
Stock “C”: $40,000 doubles to $80,000
Even just 50% gains on 3 successive plays would turn $10,000 into $34,000, but think in terms of finding and enjoying a Venture double-double-double over the next 3 months (not as easy as it sounds, but definitely possible if this market climbs 10% to 20% over 3 months). We’re entering the best time of the year for extraordinary results. In addition, the Venture’s basing pattern since September (after the August low) points to the strong possibility of a pivotal technical breakout above 560 resistance, and a reversal to the upside in the 100-day moving average (SMA), by sometime in January.
The best thing for commodities might actually be what so many investors have been fearing – a Fed rate hike increase. This intense speculation regarding the Fed and when it’s finally going to raise interest rates has kept the U.S. dollar very buoyant since the summer of last year. That game may not be so interesting for speculators in just over a couple of weeks after the FOMC meets. Getting this inevitable Fed rate hike out of the way couldn’t come fast enough.
Venture 4-Month Daily “Awareness” Chart
Encouragingly, the Venture has once again found RSI(14) support at 30% on this 4-month daily chart. That’s a level that served as resistance throughout July and August. It needs to hold, and so far it has. Watch where the Venture trades in relation to its EMA(8) and EMA(20), currently 522 and 527, respectively. What will be key is when those short-term moving averages reverse to the upside.
U.S. Dollar Index
The Dollar Index regained technical strength last month after pushing above a descending triangle, fueled by speculation that the Fed will initiate its first rate hike in nearly a decade in December. Fed officials have gone out of their way recently to prepare markets for an imminent interest rate hike. Equities seem to be taking that signal in stride, while traders continue to dump commodities (in this case, sell on rumor, and buy on the news). Speculation regarding a Fed move has been the driving force behind the greenback’s dramatic rise since the summer of last year. Once that news is out of the way, the dollar may actually cool off for a while, and commodities should regain their footing.
The Venture performs best when the greenback is in neutral or retreat. The amazing move in the dollar since the summer of last year has driven down the price of commodities and has been a key factor in the Venture’s nearly 50% decline during that time.
On this 2-year weekly chart, RSI(14) on the Dollar Index recently again met resistance at the 70% level which was support from September 2014 through the end of March this year. A price breakout above the spring high of nearly 101 would not be a welcome development, and it’s probably not something the Fed would want to see either given the deflationary implications.
Gold
Gold took a hit Friday, closing $15 lower at $1,057 on perceived manipulation. A whack of Gold contracts (18,000) were dumped on the market Friday morning during thin trading conditions, immediately following Thursday’s U.S. Thanksgiving. Suspicious, indeed.
Gold started losing momentum during the week of October 19 when buy pressure began decelerating rapidly as shown by the CMF in our 6-month daily chart. This continued into the following week, which is when we decided (Oct. 27) to recommend buying the DUST (3x Gold Miners Bear ETF) as a hedge against a drop to $1,100 or below in bullion. We closed out that position Friday (Nov. 6) for a gain of 60% over just 9 trading sessions. That’s not to say the DUST won’t ultimately head higher, but what we’ve been watching for recently are signs of a strong rebound in the TSX Gold Index after a steep decline of 20% over just 8 trading sessions (Oct. 28-Nov. 6). The Gold Index has started to stabilize, trading within a range of 118 to 128 the last 3 weeks, and appears poised to finish the year higher than it is now based on its improving technical posture. That’s why we’ve flipped back to the HGU which returned 35% over 12 sessions for us a couple of months ago.
For the week, bullion was off $20. However, Gold is emerging out of very oversold RSI(14) conditions, similar to the pattern in late July. Sell pressure remains strong but is slowly abating.
Gold 2.5-Year Weekly
Gold has traded within well-defined parameters over the last 2-and-a-half years as shown in this long-term weekly chart, with repeated moves between the bottom and the top of the downsloping flag. However, the high in May ($1,232) fell short of the top of the flag, as did the recent run that peaked at $1,192 in early October. At some point, Gold will make a decisive move either above or below the flag – that will be a critical turning point.
As you can see below, for the 4th time since late 2013 Gold has hit the bottom of the downsloping flag. The SS indicator is in the right position to reverse higher. Further downside is very limited. However, one can’t rule out a brief, manipulated plunge to $1,000. Conceivably, some “dark forces” may have enough firepower to create a temporary (false) breakdown below the channel to shake the remaining loose apples off the tree. Such an event can be expected to be followed by a hammer reversal.
Now is NOT the time to be fearful regarding Gold or Gold stocks, quite the opposite in fact. Greed can be a good thing, and very profitable, when others are fearful and there’s blood on the streets.
Silver fell another 7 cents to $14.20. Copper was off a penny to $2.08. Crude Oil added 31 cents to $41.77 while the U.S. Dollar Index jumped another half point to finish at 100.08.
The “Big Picture” View Of Gold
As Frank Holmes so effectively illustrates at www.usfunds.com, the long-term bull market in Gold has been driven by both the Fear Trade and the Love Trade. The transfer of wealth from west to east, and the accumulation of wealth particularly in China and India, has had a huge impact on bullion and will continue to support prices. Despite Gold’s largest annual drop in 3 decades in 2013, and current weakness, the fundamental long-term case for the metal remains solidly intact based on the following factors (not necessarily in order of importance):
- Growing geopolitical tensions, fueled in part by the ISIS and al Qaeda, and a highly dangerous and expansionist Russia under Vladimir Putin, have put world security in the most precarious state since World War II;
- Weak leadership in the United States and Europe is emboldening enemies of the West;
- Currency instability and an overall lack of confidence in fiat currencies;
- Historically low interest rates/highly accommodating central banks around the world;
- Continued solid accumulation of Gold by China which intends to back up its currency with bullion;
- Massive government debt from the United States to Europe – a “day of reckoning” will come;
- Continued net buying of Gold by central banks around the world;
- Mine closings, a sharp reduction in exploration and a lack of major new discoveries – these factors should contribute to a noticeable tightening of supply over the next couple of years.
Money managers are holding their first net-short position in Gold since August, and this has to be viewed as a bullish contrarian sign…in addition, assets in exchange-traded products backed by Gold have reached their lowest since 2009…
