DOLLAR DOWNTURN BOOSTS GOLD -- NASDAQ BOUNCES OFF YEARLONG SUPPORT LINE
DOLLAR RALLY MAY BE OVER ... The U.S. Dollar Index has been in an intermediate term recovery since February. It ran into trouble, however, around its 200-day moving average. The Dollar Index rose above that long-term resisance line briefly at the start of May and even reached a new 2004 high. That last move to a new recovery high, however, wasn't confirmed by short-term indicators. Chart 1 (plotted through Thursday) shows that the $USD has undercut its early May low and is trading beneath both moving average lines. The daily MACD lines are in the most negative condition since January. This is good news for foreign currencies which rise when the dollar falls. It may also be good news for the gold market which rallied this week. Chart 2 (plotted through Thursday) shows that gold has been falling since the start of the year as the dollar has been rallying. That's in keeping with their normal inverse relationship. By Thursday's close, gold was retesting intial resistance and its 200-day moving average near $395. For any number of technical reasons, a move back above $400 would be a big boost for gold and gold stocks. Both are in potential long-term support areas.
Chart 1
Chart 2
GOLD HAS RETRACED 50%... The weekly gold bars show that bullion has retraced between 50% and 62% of its latest upleg that started a year ago. At the same time, there appears to be potential chart support around the $370 level marked by the low of last September and the peaks formed during the first half of 2003 (see circles) Weekly stochastic lines are turning up from oversold territory under 20 for the first time since the spring of last year. This would be a logical spot for gold to attract new buying.
Chart 3
XAU IS ALSO IN SUPPORT AND OVERSOLD... The XAU Index looks similar to the gold chart. Its weekly stochastic lines are in oversold territory for the first time in a year. There's potential chart support in the 75-80 region. And its bouncing off an up trendline extending back to the middle of 2002. Here again, this would be a logical chart spot for gold shares to start doing better. More weakness in the dollar would be a big help.
Chart 4
NASDAQ BOUNCES OFF SUPPORT LINE... A lot has been written lately about the major stock averages bouncing off their 200-day moving averages, which is an encouraging sign for the market. After trading under its 200-day line for most of May, the Nasdaq Composite ended the week above not only that long-term average, but its 50-day line as well. To truly signal that this is start of a major upleg, however, the Nasdaq still has to clear its four-month down trendline. The Nasdaq/S&P ratio also turned up this week. The ratio line had been falling since January, which hurt the market. New leadership from the Nasdaq should now help the market. The weekly bars in Chart 6 may also carry some good news -- for two reasons. One is that the Nasdaq is bouncing off a yearlong support line (drawn on a log scale). The other is that the Commodity Channel Index (CCI) is turning up from oversold territory for the first time in a year. This is a logical spot for the market to attempt a new upleg. This week was a good start.
Chart 5
Chart 6
