STRONG STOCKS AND A BOUNCING DOLLAR PUSH GOLD SHARPLY LOWER --- QQQs LEAD MARKET RALLY
GOLD PLUNGES $15... Our morning comment talked about how the strong stock market bounce and a firming dollar was causing some profit-taking in gold shares. That profit-taking has gotten much heavier owing to a $15 drop in the price of gold (Chart 3). Gold is trading below initial chart support and its 50-day average near $370. As a result, the AMEX Gold Bugs Index is down more than 5% and is threatening its 50-day average. The XAU Index has already broken that support line.
Chart 1
Chart 2
Chart 3
DOWNSIDE SUPPORT FOR THE XAU... In my update last Friday, I suggested that gold and gold stocks appeared to be entering a downside correction. I used Fibonacci retracement lines to pinpoint possible downside targets. The 85 level represented a 50% retracement of the rally that started in mid-July, which made that a logical target. Chart 4 measures the Fibonacci retracements from the March bottom. It shows that the 85 level is a 38% retracement of that bigger move. That makes the 85 level an even stronger downside target.
Chart 4
NASDAQ 100 LEADS MARKET JUMP... The Nasdaq 100 is up 3.5% today to lead the market's impressive advance. The Nasdaq 100 shares (QQQ) are the most actively-traded unit. The daily chart shows the QQQs trading back over their 20-day moving average. That makes the next upside target the upper Bollinger Band near 35. The fact that technology and smaller stocks are leading the day's advance is a good sign.
Chart 5
