DOW AND NASDAQ STRUGGLE WITH RESISTANCE AT THEIR 200-DAY AVERAGES -- TODAY'S GOLD BUYING MAY BE TIED TO STOCK SELLING -- GOLD MINER ETF IS BOUNCING OFF CHART SUPPORT AT ITS SUMMER LOW
IMPORTANT TEST OF RESISTANCE... Charts 1 and 2 show the Dow Industrials and Nasdaq Composite Index struggllng with important resistance at their 200-day averages. The fact that those resistance lines are declining makes them even more formidable resistance (a declining 200-day line is more negative than a rising 200-day line). I wrote earlier in the month when the market started to bounce that a test of 200-day lines would probably take place sometime during the fourth quarter. The Dow is also up against potential resistance at its June low.
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Chart 1
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Chart 2
GOLD HAS STRONG BOUNCE... Precious metals are seeing a strong bounce today. As a result, mining stocks are rising sharply as well. I can't help but wonder if today's gold buying is tied to stock selling. As you you, gold is very sensitive to trends in the dollar. That's the green line below chart 3. The surge in the dollar during September had a lot to do with the downturn in gold. Gold, however, is also influenced by the direction of stocks. During late July/early August, for example, gold rose sharply while stocks fell. The dollar remained relatively flat. The pullback in the dollar this month hasn't given much support to gold. I suspect that's because the stock market has been rallying. The dollar isn't doing much today to influence gold. That makes me suspect that the buying of precious metals may be tied to the feeling that the stock rally is over-extended and due for some profit-taking.
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Chart 3
GOLD MINERS BOUNCE OFF SUMMER LOW... Mining stocks are bouncing along with precious metals. Chart 4 shows the Market Vectors Gold Miners ETF (GDX) climbing more than 3% today and bouncing off chart support formed during June. Today's is first sign of relative strength in this group in nearly a month. Not only is it coming at a time when the group is in potential support, but at a time when the mining group looks very oversold.
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Chart 4
GOLD MINERS BULLISH PERCENT INDEX IS OVERSOLD... The black line in Chart 5 measures the % of gold miners in point & figure uptrends. As is the case with other indicators of that nature, readings over 80% are overbought, while readings below 20% are oversold. This indicator has reached that oversold level for only the third time in the last three years. The last time was during the first quarter of 2010 as the group was ending a downside correction. Chart 6 shows the point & figure version of the BPGDM. An upside reversal into a rising x column has already taken from oversold territory below 20%. That's usually a good time to take a closer look at the gold mining group.
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Chart 5
