Weekend Update - In depth analysis of Commodities, $Gold and Gold Stocks - $CRX, $GOLD,GSS,GG,HMY
On this update I want to discuss the recent developments in the $CRX and the Gold sector. As you know from previous updates, we have been following the $CRX ever since it placed it's last lows in October 2006. I always look at an index sector chart, such as the $CRX, in order to analyze a sector's performance and trend. This will indicate how the stocks in the whole sector are also performing. Since the Trending123 portfolio is overweight stocks belonging to the commodity sector, I would like to cover this sector in more detail. In this update, I will review the $CRX's performance for the last four months and the implications of a $CRX bottom and how it will affect our commodity related stocks. Last year the commodity sector peaked in May of 2006. Consequently, the $CRX under performed the market indexes. However, the tide has now turned, and the $CRX and commodities have resumed their bullish upward trend. In fact, this week the $CRX came within pennies of making new 52 week highs at 650.70.
Components of the $CRX Morgan Stanley Commodity Related Index-- The Morgan Stanley Commodity Related Equity Index (CRX) is an equal dollar weighted index based on shares of widely held companies involved in commodity-related industries such as energy (e.g. oil and gas production and oil field services and equipment), non-ferrous metals, precious metals, agriculture and forest products. The CRX Index was established with a benchmark value of 200.00 on March 15, 1996. To ensure that each component stock continues to represent approximately equal weight in the index, adjustments are made quarterly, based on closing prices on the third Friday in March, June, September & December. If you look at the components of the $CRX, you will see that 4 of our portfolio stocks are listed in the $CRX. They are ADM, APA,GG, and POT. My goal has been to get into a basket of diversified commodity related stocks that follow the $CRX, because it just looks so bullish. That is why our portfolio holds a lot of the CRX's peers.
The commodity sector in general has been trading in a sideways/ consolidation phase just under resistance this past week This is because the $CRX needs a catalyst to propel it forwards through resistance. Next week the Bank of Japan will announce their interest rate decision on Wednesday, February 21st 2007. This may provide the catalyst that the $CRX needs to take out resistance and make new 52 week highs. The Bank of Japan meeting is important because it will influence how the world would view interest rates and watch for signs of inflation. I believe that the commodity stocks are smarter and have rallied and have out performed their commodities in the face of a possible rising interest rate environments. At the root of inflation we see rising prices of oil, metals and other natural resources. If rising commodity and energy prices are the principal risk to our personal purchasing power, it makes sense to own stocks which will prosper from them.
$Gold is a good bench march for signs of inflation. It is the only commodity that people watch for signs of inflation. Now I want to talk about $Gold's action this past week prior to the Bank of Japan announcement next week. $Gold has run up all the way back up to the July '06 highs to place a new 52 week high at $676.60 only to stall this past week. Furthermore, this stalling has occurred at the 72% retracement level. This is a key Fibonacci retracement level. Remember that any index/stock that retraces more than 72% of an impulse wave up or down automatically makes it become a corrective wave. The $680.00 area is the 72% retracement level for $Gold, and it also represents strong resistance. If the $Gold can surpass that $680.00 level, it would then negate the entire down move from the previous highs. I can make the case that if there was ever a time to suppress the advance of gold beyond the 72% retracement level it would be before the Bank of Japan announcement. After the announcement then it doesn't matter because G 7 has announced it's interest rates, the US has announced it's interest rates and the last big announcement is going to be the Bank of Japan's. Sometime's you have to assume what other's are think in order to figure what isn't going on. The timing of $Gold's stalling in advance of this meeting couldn't have happened a better time. Perhaps the Bank of Japan's rate announcement will be the catalyst to propel $Gold towards it's 52 week highs at $730.40.
Morgan Stanley Commodity Related Equity Index stocks ($CRX) - Daily Chart - Bullish Ascending Triangle Pattern
The daily chart illustrates that the $CRX is in the process of forming a bullish continuation ascending triangle pattern. It is also in the same pattern on the weekly chart,this pattern repetition in multiple time frames is called a fractal. As you can see, the $CRX spent most of the summer months correcting in a lateral triple combination pattern within a impulse wave (3) to wave (4) pullback. The $CRX then formed a bullish irregular flat during the summer and early fall months of 2006. This retest of the lows marked the bottom of the XWY wave. If you look at the moving averages you can see that they bottomed there as well. As price stalled and then began to reverse course, the moving averages and indicators and oscillators followed suit. This marked the beginning of a 1-2-3 Bullish trend reversal which was confirmed with a break out above the intermediate term downtrend line formed in impulse wave (3) to wave(4). A new bullish intermediate trend established itself and the $CRX rallied upwards to test the 2006 highs in early December. At this time,the $CRX then paused for a short term ABC pullback/dip down to test the uptrend line in the form of an irregular flat. This bullish price movement set the $CRX up for a strong rally into the first quarter of 2007. Furthermore, you can see that the $CRX has taken out the December's highs and is moving parabolically upwards towards resistance at $650.76. This week the $CRX came within pennies of making new 52 week highs 650.70. Right now, the daily chart illustrates that the $CRX is in bull flag pattern and is consolidating at resistance. Furthermore, you can see that price is trading above the EMA's and the moving averages are trading in a bullish fan, and all the indicators and oscillators are in a 1-2-3 bullish trend reversal, are showing bullish divergence, and moving up along with price. The PPO and Stochastics are bull flagging along with price.
$GOLD - Continuous Contract (End Of Day) INDEX - Daily Chart - Bullish Ascending Triangle Pattern
If you look at the chart of the $CRX and look at the $Gold chart, you will notice that they have almost identical charts. Coincidence? I don't think so. Along with the $CRX, $Gold has been moving up steadily ever since the breakout in this October/November. This is when it took out the impulse wave 3 to wave 4 down trend line, and also where it placed a bullish irregular flat during the summer and early fall months of 2006. Gold is now in an impulse wave 5 uptrend. In fact, $Gold has just taken out the highs from last July and placed a recent high at $676.60. However, $Gold has stalled right at this resistance level, which is also the Fibonacci retracement 72% level. $Gold is stalling and waiting on the Bank of Japan rate announcement. This consolidation is forming a bull flag. It is also holding it's 13 EMA and all the indicators and oscillators are in 123 bullish trend reversal. Furthermore, the trend is bullish on all time frames and it looks like a breakout is forthcoming . There is already a disconnect between the Metal and the stocks. The Gold stocks are already outperforming the commodity, which is a bullish indicator for our stocks. We only have 3 gold stocks: GG, GSS, HMY. ( By the way they are not following the $XAU or $HUI)
Goldcorp, Inc. (GG) - Weekly Chart- Falling wedge within a larger Ascending Triangle Pattern - Gold- Optionable
GG is a medium risk Gold play. It is also a component of the $CRX. GG is in a bullish ascending triangle pattern. Within this pattern is a smaller bullish falling wedge pattern. Within the falling wedge, you can also see a text book ABC pullback to the longer term uptrend line. The wedge makes up a wave 3 to 4 pullback. Furthermore, you can see the bullish cross of the moving averages which will likely turn into a bullish fan in time. The Aroon indicator just had a 1-2-3 bullish cross, and the rest of the indicators and oscillators are bullish and moving up along with price. GG is an investor trade, meaning that it is meant to be held for 6+ months or until price target is reached at $44.00. I recommend just buying and holding GG for the longer term. GG is doing what it is supposed to do.
Golden Star Resources Ltd. - (GSS) - Monthly Chart - Counter Trend Pullback Channel Breakout - Gold - Optionable
GSS is a medium risk Gold play. We sold AUY to get into GSS. Back in early 2000, when I first started talking about GSS and suggesting it, I never thought the $Gold bull market would officially take off until GSS started cooking. Back in 2006, when the $XAU and $HUI made new highs, GSS never did. The fact that GSS was under performing, made me doubt the gold stock rally because GSS was led the Gold stocks rally in the first place. GSS has always been a front runner in the Gold sector. In January 2007, GSS went up 11%, and this month it is up 17.68%, and on good volume. GSS trades on its own merits. The monthly chart of GSS illustrates that it has just broke out of a counter trend wave (3) to (4) channel. GSS is now trading above it's exponential moving averages on the monthly chart. The EMA's are also converging now and attempting a bullish triple moving average crossover. You can also see that the Aroon indicator has recently had a bullish cross. Furthermore, if you look at the WM%, the PPO, and stochastics you can see bullish divergence appearing. This is the beginning of a impulse wave 5 up move. GSS is outperforming the $Gold by leaps and bounds. The buy alert for GSS was triggered at $3.23. It is an investor trade, meaning that it is meant to be held for 6 to 12 months, or until price target is reached at $10.00. You do not need to watch every tick on this stock, just buy and hold it as an investment until price target is reached at $10.00.
Harmony Gold Mining Company - (HMY)- Weekly Chart - Counter Trend Pullback Optionable
MY is currently trading in a counter trend pullback channel. HMY has not gone anywhere. However, it appears that it has stopped moving down and is trading above 200 EMA. HMY has just had a bullish Aroon cross on the weekly. In addition, the indicators and oscillators are still in a bearish trend reversal and appear to be bottoming. The RSI is bullish and moving up along with price. HMY will probably start performing better as $Gold starts breaking out above the 72% retracement level.
$CRX
$GOLD
GG
GSS
HMY
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