CDNX and Gold
It was another strong week for the CDNX which never even hesitated pushing through 1800. The Index closed Friday at 1823 for a 38-point weekly gain, its 9th consecutive weekly advance. The CDNX is up a whopping 36% from its early July low of 1343.
Friday’s action in the CDNX was particularly interesting. Gold took a hit Friday, dropping as much as $25 intraday. The CDNX fell from a high of 1828 to a low of 1809 and then rallied to close the day up half a point to 1823. This shows the incredible buying support that’s coming in on any pullbacks in the CDNX and also demonstrates that $1400+ Gold is probably just around the corner.
As John’s chart earlier today shows, the CDNX continues to be in a super-charged state and is showing no signs of letting up. The trend, as they say, is your friend. So it makes sense to continue to embrace the trend. Our “Big Picture” view is that we’re in the midst of an historic move in Gold and junior gold and mining stocks in general which ultimately should take the CDNX to much higher levels than it’s at now. Over the near term we expect the CDNX is going to test a band of resistance between 1900 and 2000. The 200-week CDNX moving average (SMA) is currently at 1959 and continues to decline. This is where there is going to be some resistance and likely a reaction. After a pause and a minor correction to unwind overbought conditions, the CDNX should have fresh legs for another potential huge move that could take it well beyond 2000 during the 1st quarter of next year.
The best strategy in this type of environment (and at anytime really) is to own a basket of high quality juniors rather than putting all of your speculative money into just 1 or 2 plays. When the CDNX jumps over 30%, as it has over 3 months, some stocks will beat the market by a factor of 10 to 1. Some tremendous gains are possible if you’re in the right play at the right time and this requires diversification. Some investors unfortunately have largely missed out on this move since early July as they’ve made the mistake of putting all of their money into just 1 or 2 stocks which haven’t yet participated in the run.
Another thing to be careful about is trading too much and losing your position in a particular stock. If you believe as we do that the CDNX could double in value (from 1343 to 2700) in 7 months like the Nasdaq did (from 2500 to 5000) between the summer of 1999 and early 2000, then it’s best to stay long on the stocks that have the best prospects (rather than frequently trading them) and let your profits run unless you are an exceptionally skilled trader. The more you trade, the more mistakes you’re going to make.
Gold hit another new all-time high this past week of $1,388 before closing Friday at $1,369 for a $22 weekly gain. Over the past 5 weeks Gold has been remarkably consistent and has climbed $122 ($22, $28, $22, $27 and $23 weekly increases, respectively). Traders/investors will be buying into any weakness in Gold and selling into any strength (a technical bounce up) in the U.S. Dollar. Fed Chairman Ben Bernanke is not coming to the defence of the beleagued greenback – in fact, his strategy has been to drive it lower to “help” the U.S. economy and increase inflationary pressures. Trashing paper currency is an insiduous tactic that governments the world over have repeatedly used to gain a trade advantage and when skyrocketing deficits and debt have threatened the collapse of their economies.
Guys, what do you think of the huge dip in gold price today? Currently it is at 1360. Isn’t there huge support at the 1370 levels?
Otherwise, excellent advice and keep up the amazing work!
Comment by Muiz — October 17, 2010 @ 4:57 pm
Thank you for your question. First, I wouldn’t be calling a $10 drop at these levels a “huge” drop. Add another zero to that and you’d have a huge drop. There is strong technical support at $1,350, and any pullbacks right now are expected to be minor with buyers quickly jumping in. You’re seeing a bounce up in the U.S. Dollar which is not surprising as it has really taken a beating lately, and John correctly identified support just above 76 on the Index. The Dollar’s upside is very limited, though, and sellers will attack it vigorously around 78 which was previous support. The Fed has made it very clear, without actually coming out and saying it, that it wants a weaker Dollar. I wouldn’t be surprised to see the greenback break below critical support at 76 in the near future which could push Gold to $1,500.
Comment by Jon - BMR — October 17, 2010 @ 8:34 pm