Near the end of August we stated: “The CDNX continues to charge higher with September shaping up to be a potentially spectacular month.” Indeed, September was a terrific month with the Index surging nearly 14% from 1500 to 1708. Just recently the CDNX was showing signs of temporary exhaustion around 1700, raising the possibility of a minor pullback of maybe 5%. With a decisive move through 1700, however, on very strong volume, it now seems clear to us that the CDNX is ready to challenge resistance between 1900 and 2000, quite possibly this month, as outlined in John’s very interesting analysis below.
While a minor pullback in the CDNX will undoubtedly occur sometime this quarter, our macro view is that the CDNX and gold mining stocks in general are in the midst of an historic move with the “Mania Phase” not even upon us yet. This could ultimately lead the CDNX to new all-time highs, more than double where it is now. In our view this is truly an amazing time – the right time – to be invested in quality junior mining stocks. Below is an updated CDNX chart followed by John’s analysis:
Last week the CDNX opened at 1704, drifted lower to its 10-day moving average of 1678, then rose steadily to close Friday at its weekly high of 1745 for a gain of 45 points (2.66%) on huge volume of 1.8 billion shares. That’s the highest weekly volume in over 3 years.
Looking at the 3-year weekly chart we see that until July 1, 2008, the strong support for the CDNX was the long term 200-week moving average (SMA-200). In very early July, 2008, the Index started its plunge by breaking down through that moving average around the 2500 level (thin blue line on left hand side). It eventually bottomed at 679 exactly 5 months later in a record crash.
From there the Index started to develop a 5 wave Motive Phase followed by a 3 wave Correction Phase. These patterns have been described in detail on previous charts. The Index then began wave #1 of a new Motive Phase which it is continuing to develop at the moment. A resistance band (blue horizontal lines) is shown at the 1900 – 2000 level. This was caused by a 3 to 4 week pause in the downward plunge in August, 2008. We also see the 200-week SMA (orange line) presently in this band at 1969, adding credibility to this resistance area. Remember, it was support before it was broken and now the Index sees it as resistance. The 20-week SMA (blue line) provided strong support during the Motive Phase and is now below the Index again and about to turn up and return to its supporting role.
Volume has increased by 80%, from 1 billion to 1.8 billion shares traded in a week in just 7 weeks (mauve line). This is all up volume and has caused the CDNX to be super-charged. As previously stated, last week saw the highest weekly volume in more than 3 years.
Looking at the indicators:
The RSI is at 72% and just entered the overbought zone, thus there is plenty of room to move higher.
The Slow Stochastics is high in the overbought region but as we have seen before it can stay overbought for long periods during a strong uptrend.
The ADX trend indicator turned bullish during the 3rd week this past August (thin blue line on right hand side) when the +DI(green line) crossed above the -DI (red line). The ADX (black line) trend strength indicator is still relatively low at 27 and has turned up, indicating the strength of the uptrend is increasing. All ADX indicators are in bullish orientation.
Outlook: The chart patterns and indicators point to the CDNX continuing to progress upward, full steam ahead until it reaches the 1900 level where I expect it to start to meet resistance. Any consolidation around the 1700 level has just been just a pause and not the onset of a minor correction due to the very strong buying pressure. We should see a very bullish October.
