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CDNX and Gold

The CDNX was a relatively strong performer this week, fairing better than all the major markets as well as Gold which fell $18 for the week.  The CDNX gained 7 points last week to 1379.  Its five-session winning streak was snapped Friday when it lost 7 points as the Dow and TSX suffered triple digit losses.

As our technical analyst pointed out in an article Friday, the 2010 CDNX chart looks very similar to CDNX patterns in 2004.  We see a significantly greater likelihood of a repeat of 2004 vs. a repeat of 2008 which many newsletter writers and analysts are warning about.  Supported by rising 200 and 300-day moving averages, the CDNX is in a much healthier technical position than it was in the summer of 2008.  One cannot rule out the possibility of a final plunge or shakeout here in July or early August that could take the CDNX down to about 1,300, but it’s equally possible the 1343 low earlier this month will hold.  After the market bottomed in July, 2004, it rose 26% by the end of the year.  The sell-off since the beginnning of May this year appears to have largely exhausted itself and has to be interpreted, we believe, as merely a normal correction within an ongoing bull market.  If we were about to witness a crash in the overall markets, similar to 2008, the speculative CDNX would be accelerating much more to the downside and collapsing technically ahead of the major markets which has not occurred.

Only time will tell if we are correct but the CDNX has proven to be a very reliable and consistent leading indicator.  We could see some choppy trading for a few more weeks before a significant move to the upside begins to take hold by mid-August or so.  By that time Gold will be entering a period of seasonal strength.  Gold is showing some technical weakness at the moment with declining 14 and 30-day moving averages.  It has closely followed its 60-day moving average, though, which continues to rise.  Gold has not touched its rising 200-day moving average since January, 2009.  Right now Gold is just $33 above its 200-day SMA which is $1,160.  Further choppiness in Gold should also be expected over the near term but this market should firm up again later in the summer as it traditionally does.