CDNX and Gold
The CDNX had a volatile but very encouraging week as it headed sharply lower Monday and Tuesday but successfully tested the bottom end of the support band BMR had identified at 1900. The Index fell as low as 1902 Tuesday, dropping as much as 80 points intra-day, before regaining 21 points by the close to finish Tuesday at 1923. The Index then enjoyed gains of 31, 34 and 8 points Wednesday, Thursday and Friday, respectively, to end the week at 1996 for a weekly loss of only 11 points.
The action in the CDNX this past week clearly demonstrated the incredible underlying strength of this market. The total minor correction from the high of 2070 November 9 to the intra-day low last Tuesday of 1902 (6 sessions) was 168 points or 8%. This was extremely helpful in terms of unwinding the overbought condition and has paved the way for a new 52-week high in the near future. The 8% drop also almost exactly matched Gold’s decline over a 5-session period, and the fact the CDNX (a very reliable leading indicator) rallied strongly on Wednesday in the face of continued softness in Gold that day was a sign that Gold had likely reached its low as well. We only have to be concerned when the CDNX is under-performing Gold, a situation that developed in early May this year and led to a 20% correction in the Index by early July.
Gold rallied strongly Thursday and held its ground Friday to close the week at $1,354. Gold suffered its second straight weekly decline, dropping $15 after falling $25 the week before. A number of factors contributed to Gold’s weakness and a sell-off in commodities across the board including a firmer U.S. Dollar and fears of more monetary tightening in China. Gold has very strong technical support at $1,320 (it came within about $10 of that level this past week) and the kind of pullback we’ve just seen in Gold ($100 over 5 sessions) is what is required from time to time within a strong bull market to shake the tree and re-fuel for a move to new highs. The U.S. Dollar is in overbought territory and the Dollar Index (currently at 78.47) faces major resistance in the 79-80 area. Regardless, going into 2011, it’s quite possible Gold will go higher no matter what the U.S. Dollar does. The Gold-U.S. Dollar relationship is not always an inverse one as we saw earlier this year.
