CDNX and Gold
The number “13” proved to be unlucky for the CDNX this past week. After 12 consecutive weekly advances, the Venture Exchange finally gave up some ground, albeit very little, as it posted a meager 2-point loss. Is this an indication that a major correction is on the way? Not at all. The CDNX, a very reliable leading indicator, actually significantly outperformed the major markets this past week and that’s a very good sign. The Dow was off 2.2%, the Nasdaq fell 2.3% while the TSX declined 1.4%. When the most speculative market, the CDNX, continues to be the leader we have little to fear.
The CDNX was in excellent shape for a 13th consecutive weekly advance until Friday when a 5% overnight drop in the Chinese market on fears of monetary tightening in that country led to significant losses across the board just about everywhere with the sell-off hitting commodities as well. The underlying strength of the CDNX was clearly on display, however, as intraday it dropped below 2000 to 1987 (8 points below its supporting 10-day moving average) before rebounding to finish the day and the week at 2007. It was a volatile 5 sessions for the CDNX which experienced a 71-point swing on Tuesday, climbing to a 2-year high of 2070 and then plunging within a few hours to 1999. This kind of volatility is perfectly normal at this stage of the bull market and buying into these corrective pullbacks is the winning strategy. Our view is that we will see the CDNX challenge its all-time high of around 3400 in 2011, so a lot of upside remains with huge support between 1900 and 2000 which is the previous resistance band that we identified a couple of months ago.
The CDNX’s 200-week moving average is now sitting at 1940, exactly where the 20-day SMA currently is. The 10-day is at 1995. Since late July, when the Index was below 1400, we’ve seen the 10-day SMA provide rock-solid technical support – the CDNX simply refuses to close below it. If for some reason this support should fail, there’s another huge wall of support at 1940. This past week’s action has also helped unwind the previously heavily overbought condition with the daily RSI now at 69.26 and the weekly RSI at 83.02.
We remain in a bull market of historic proportions with a Perfect Storm in place – many factors are underpinning Gold and driving the yellow metal and commodities in general higher, including a Federal Reserve that is all doped on a new form of heroin known as “Quantitative Easing”. Part of Helicopter Ben’s strategy, and he’s succeeding so far, is to actually prop up the stock market and other asset classes and reflate the American economy – he wants to drive everything up but the American Dollar to avoid a Japanese-style deflationary cycle. The new U.S. Congress in January will also be focused on kick-starting the American economy, so we believe we’re in for at least several more months of red-hot markets.
Gold hit a new all-time high of over $1,425 last week before selling off $40 an ounce on Friday to close the week at $1,369. That was a $25 decline from the previous week. Gold’s biggest single-day moves in its 10-year bull run have consistently been to the downside and those occasions have almost always been great buying opportunities, so Friday’s sell-off was actually encouraging in our view. A little shakeout like that is always healthy in a rip-roaring bull market. The G-20 meetings Thursday and Friday in South Korea settled nothing, it appears, in terms of the on-going “currency wars” and other issues which is bullish for Gold moving forward.
