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Gold has traded in a narrow range between $1,571 and $1,580 so far today…as of 6:20 am Pacific, the yellow metal is down $1 an ounce at $1,574….Silver is off 2 pennies at $28.68…Copper is unchanged at $3.51…Crude Oil is down slightly at $90.59 while the U.S. Dollar Index has added one-fifth of a point to 82.22…

Dow At Record High – What’s Next?

The Dow finally hit a new all-time high yesterday, piercing through levels last seen in October, 2007, thanks to a range of factors including ongoing Federal Reserve monetary support…the euphoria on Wall Street could be short-lived, however, given certain technical indicators as described below by John in a 10-year weekly Dow chart…at some point in the near future, the most likely scenario in our view is a Dow/broader market correction coinciding with a powerful reversal in Gold…bullion may have to drop a little lower before that occurs, with the Dow reaching slightly higher levels, but a change in trend appears to be brewing…the Dow is also now more than 1,000 points above its 200-day moving average (SMA), a situation that typically precedes a correction…how the Venture Exchange would react during a broad market pullback combined with a reversal in Gold is anyone’s guess, but the producers would likely perform the best…active juniors with strong cash positions and discoveries would also draw attention…

John: When a new record is established it’s always wise to analyze the situation to determine if the present upside move is sustainable…an insight can be obtained by using indicators with a long-term weekly chart…in this case, I have a 10-year weekly Dow chart that includes RSI(14), Bollinger Bands(40,2.0), %B, the ADX with +DI and -DI, and Volume…

Starting with the RSI(14), a vertical red dotted line indicates each time it has broken above 70% (as it has now)…note that where these lines intersect the price chart, the Index is close to a peak and there is a retracement immediately or shortly after…

It is also known that when a price drifts too far away from a close moving average, a reversal occurs…one way to measure this is to use Bollinger Bands with the %B indicator…when the price touches its upper band it has a tendency to reverse toward the middle line (dotted)…the %B indicator has a value of 1 when the price touches the upper band…the chart shows %B was at 1 or above each time it was intersected by the red dotted lines…this indicates a reversal was expected at these points…

On the ADX indicator, we are only interested in the +DI(green line)…we see that each time the red vertical lines intersect the +DI line, it has peaked and immediately reverses downwards…this shows the bullishness has weakened….

Yesterday, RSI(14) finished the day at 70.44, %B is at 1.05, +DI is at 22.74 and pointing down…

The last indicator to be considered, perhaps the most important, is volume…note on the chart that leading up to the previous high in 2007, the weekly volume was increasing…increasing volume is necessary to sustain a rising price, but since mid 2011 the weekly volume has been in decline…yes, the Dow can keep going up but, in my humble opinion, only for a short time before it corrects…keep in mind, markets go up further and go down further than anyone expects…be careful…

As a side note to the Dow’s record high yesterday, an article in the Wall Street Journal pointed out this morning that when inflation is factored in, the Dow is far from a record – it hasn’t been in real record territory for 13 years since January 14, 2000…

Venture Exchange/Gold/CRB Comparative Chart

The Venture rallied 15 points yesterday to climb back above the 1100 level, closing at 1112…there is Fibonacci support around 1100, as John has indicated…if the 1100 level ultimately can’t hold, however, then the next major technical support is obviously right around the 1000 mark…during an early summer correction in 2009, the Venture found support at 1027…below is a 2.5-year comparative chart that features the CDNX, Gold and the CRB…the Venture has definitely been hurt by the recent decline in both Gold and the CRB…on a positive note, RSI(14) for the Venture on this chart is very close to support at 29%…a drop of another 100 points on the Venture certainly can’t be ruled out but that could open up some terrific buying opportunities…the next few weeks will certainly be interesting…

U.S. Dollar/Euro Ratio With Gold

One interesting way to track Gold is through a U.S. dollar-euro ratio with bullion…this ratio and Gold are currently (as they typically are) in an inverse relationship, attempting to form a top and a bottom respectively…based on John’s 2.5-year chart below, the current ratio in our view suggests that bullion is very close to a bottom – just one more piece of bullish evidence, along with many other factors including the dramatic scaling back of short positions by the commercial traders…

Today’s Markets

Asian markets were stronger overnight with Japan’s Nikkei average hitting a fresh 4.5-year high while China’s Shanghai Composite continued to rebound from a 6-week low…European shares are in positive territory this morning while stock index futures in New York as of 6:20 am Pacific are pointing toward a higher open on Wall Street, and another new all-time high, after a better-than-expected private sector employment report released this morning…