GATEWAYS SOARS -- RETAILERS GETTING MARKED DOWN -- NEWMONT SELLS OFF ON VOLUME -- DOLLAR NEARS MAJOR SUPPORT
GATEWAY HITS 52-WEEK HIGH ... Even on a relatively flat market day, there's always something going up. Today it was Gateway. The stock was the biggest percentage gainer in the S&P 500. And its daily bars in Chart 1 pretty much speak for themselves. GTW broke through its spring high on the heaviest trading in six months. Impressive as the daily chart is, the weekly chart is even more so. Chart 2 shows Gateway challenging its mid-2003 peak just below 7. A decisive close through that chart point would put the stock at the highest level in three years. Its relative strength is also rising versus the S&P 500. Absolute and relative strength, rising prices, rising volume, and upside breakouts. All are bullish indications.
Chart 1
Chart 2
RETAILERS ARE BEING SOLD ON VOLUME... Yesterday's big plunge in Wal-Mart spilled over to other retailers again today. Three of the day's worst performers are shown below. What's most disturbing about the price sell offs is the rising volume. Radioshack saw the heaviest selling volume in six months (Chart 3). Family Dollar Stores ended back under its 200-day line on heavy volume. Circuit City closed beneath its 50-day average -- also on rising volume. Retail selling is helping to keep a lid on the market.
Chart 3
Chart 4
Chart 5
MORE ON BOLLINGER BANDS... I mentioned yesterday that the inability of the Nasdaq 100 Shares (QQQ) to touch the upper Bollinger Band was a sign of a loss of upside momentum. I've been asked to explain that idea a bit more. The two solid lines plotted above the below the daily chart of the QQQ are Bollinger bands. The middle dashed line is the 20-day moving average. [The bands are plotted two standard deviations above and below the 20-day line]. If you look at the recent uptrend in the QQQ, you'll see that the upper line has been touch (and even briefly surpassed) on several occasions. That normally happens as long as the uptrend is intact. Yesterday's early move into new highs is the first time that the upper band hasn't been touched since the recent uptrend began. That's an early sign that the short-term trend is weakening. It's important to combine an oscillator like the RSI with the bands. The 14-day RSI is turning down from overbought territory over 70. That's another sign of short-term weakness. When a short-term top is in place, it's normal to expect a pullback to the 20-day line. [If that doesn't hold, prices can drop all the way back to the lower band]. Right now, the first line of support is the 20-day line (and the reaction low) near 38.5. You'll also notice that the two Bollinger bands are starting to converge. That's another sign of a short-term top. [You can see that better by plotting the "Bollinger Band Width" on your chart. That's the last choice on the Stockcharts Indicator Windows]. And, the black ADX line appears to be turning down. The drop in the green buying pressure line is another sign of weakness.
Chart 6
NEWMONT SELLS OFF ON VOLUME ... Last week I urged some caution on gold stocks as Newmont Mining started to back off from its early 2004 peak at 50. Newmont is the biggest stock in the XAU Index and therefore carries a lot of weight in the gold group. The big gold stock deteriorated even further today. Its daily chart shows NEM falling to a four-week low. What's more disturbing is the high volume. The next test of support will be its 50-day average at 46.51. Chart 8 shows the Gold & Silver (XAU) Index selling off as well. It was one of the day's biggest percentage losers. Although no serious chart damage has been done, its daily MACD lines have turned down for the second time which is a caution signal. Last week, I suggested some minor profit-taking in gold stocks (mainly for short-term traders). Although I remain bullish on gold stocks, I don't think this is the right time to be taking any chances. Especially with the dollar bearing down on major support at 80 and looking very oversold. I continue to favor holding onto a core gold position.
Chart 7
Chart 8
DOLLAR NEARS SUPPORT... I'm repeating this long-term dollar chart to emphasize that the Dollar Index is within a couple of points of major support near 80. At the very least, that argues against pressing the short side at these levels (or the long side of gold or gold stocks). The 14-month RSI line is also in oversold territory under 30. I've been asked how much of a bounce could materialize in the Dollar Index. The weekly bars in Chart 10 are more suitable to answer that question. On any rebound from the 80 level, I would expect a bounce at least to the early 2004 bottom near 84.80. A slightly higher objective could be a test of the 20-week average (the middle dashed line near 87). The maximize bounce I could envision would be to the spring high near 92. Even that bigger bounce wouldn't disturb the long-term downtrend. Notice also that the 14-week RSI is in oversold territory under 30. The last two times that happened, the dollar bounced (see arrows). That's another reason why I've become a bit more cautious on gold. If the dollar bounces, gold and gold stocks will correct even further.
Chart 9
Chart 10
