CDNX and Gold
All things considered, it was a banner week for the CDNX. With the Dow falling 3%, the Nasdaq off 5% and the TSX down 2.5%, the CDNX held its ground and shed just 8 points (half of 1 per cent) to 1457. Given the fact the CDNX has proven to be such a reliable and accurate leading market and economic indicator, we cannot emphasize enough how significant it is that this speculative Index has been performing so well over the past 5 weeks since bottoming at 1343 July 6. The CDNX started moving to the upside before Gold did last month and now it’s outperforming the major markets. What this tells us is that the overall markets in the weeks and months ahead should be pretty good, that a major crash just isn’t in the cards (we saw the opposite in the summer of 2008 when the CDNX moved ahead of Gold and the major markets to the downside, technically falling apart, and we all know what happened after that). At the moment we have a very interesting technical situation with the CDNX which is trading between its 50 and 100-day moving averages. After a 3-month decline, the CDNX 50-day SMA is imminently close to reversing to the upside – in fact, we could very easily see this reversal occur next week. When this happens (we believe it’s only a question of when, not if), it’s like the equivalent of adding gas to a fire. The Index can be expected to challenge heavy resistance around 1500 and with a fresh supply of fuel it has an excellent chance of breaking through that resistance (if not initially, then on another attempt). Keep in mind the CDNX’s 200 and 300-day moving averages continue to rise – we saw a very normal 20% correction (May into July) and a classic “W” bottom formation within an ongoing bull market, and now a major new advance appears to be underway. Gold had an excellent week, pulling itself back up after some intra-day moves below $1,200, and closed Friday at $1,215 for a $9 weekly advance. The Gold bulls have wrestled back control from the bears. Even an advancing U.S. Dollar could not get in Gold’s way this week. The yellow metal is underpinned by strong technical support as well as physical buying on any dips. Given the fact we’re entering a traditional period of seasonal strength in Gold, it’s likely safe to assume the $1,200 level is going to hold and a move to new all-time highs ($1,300 to $1,350) is quite possible over the next couple of months. That’s what the CDNX is telling us as well.
