CDNX and Gold
The CDNX enjoyed a good week and finished ahead 16 points to close at 1395 on increased volume which is important. The CDNX has some resistance to overcome, right at 1395 and again around 1450, but we’re seeing a lot of bullish signs which makes us believe this market could bust loose very soon. As BMR’s technical analyst pointed out so effectively in an article Friday night, it appears highly likely the CDNX bottomed out at 1343 July 6. If that’s indeed the case, the correction from May 1 totaled 345 points or 20.4% over 45 trading sessions – definitely in line with previous major CDNX pullbacks that occurred within an ongoing bull market each year from 2003 through 2007. As we’ve mentioned and analyzed, the 2010 CDNX chart bears a striking resemblance to the one from 2004. The market slid 25% from the spring high to the July (and yearly) low in 2004 before a very profitable 25% move to the upside over the next 5 months. What’s particularly encouraging about the modest recovery in the CDNX since July 6 is the fact Gold has been under some pressure during that time. The CDNX is like a “forward looking” machine and seems to be telling us Gold is going to strengthen again soon, probably starting sometime in August, and that in turn is also going to propel the CDNX higher. In addition, the bullish signs we’re seeing in the CDNX do NOT jive with the crash (“sky is falling”) scenario that some fear-mongering pundits who haven’t yet recovered from 2008 are peddling to investors. Based on historical patterns, there’s no way the CDNX (a very powerful leading indicator) would be behaving in the manner that it is right now if an across-the-board crash in all markets was just around the corner. This market still has a lot of underlying strength and vibrancy to it with long-term rising moving averages (200-day and 300-day) that are in no danger of reversing right now. The bullish case, in our view, is undisputable. Gold continues to hold above its rising 200-day moving average and has tremendous technical support between $1,140 and $1,180, as demonstrated again this past week. While some short-term technicals have weakened in Gold this month, the market is holding its own under that kind of pressure and also appears to be supported by physical buyers. A period of seasonal strength in Gold begins by about mid-August.
