DAX AND DOW BOUNCE AS EU SUMMIT WINDS DOWN -- THE NOOSE NARROWS AS GOLD CONTINUES TO CONSOLIDATE -- GOLD MINERS ETF FILLS GAP WITH FALLING WEDGE -- BASE METALS ETF FORMS TRIANGLE WITHIN DOWNTREND -- SPOT CRUDE HITS RESISTANCE AT KEY RETRACEMENT
DAX AND DOW BOUNCE AS EU SUMMIT WINDS DOWN... Link for todays video. European stocks were higher on Friday as the EU summit winds down. Success or failure depends on one definitions and expectations. Regardless of the outcome, stocks in the US and Europe moved higher Friday. Chart 1 shows the German DAX Index ($DAX) opening weak with a print at 5806 and then rallying above 5950. This move erased some of this weeks losses and kept the falling channel breakout alive. The DAX broke channel resistance with a surge in late November and the breakout resides around 5700. A move below this level would negate the breakout and put a bigger triangle in play.

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Chart 1
Chart 2 shows the Dow Industrials moving back above 12000 with a modest gain early Friday. Overall the senior Average has a higher low in late November and is challenging resistance in the 12200 area. Resistance here extends back to the late October high. A break above this high would open to the door to the summer highs and could lead to the fabled Santa Claus rally. With todays bounce, the Dow also established a minor support level at 11900. Failure to hold todays gain and a move below this level would provide the first indication of a failure at resistance.

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Chart 2
GOLD CONTINUES TO CONSOLIDATE AS THE NOOSE NARROWS... Chart 3 shows the Gold SPDR (GLD) with an every narrowing consolidation. After a big upswing from early July to early September, the ETF has embarked on a series of swings that are decreasing in size. As a result, a big triangle is taking shape. The late November low still marks key support, while the early December high now marks key resistance. Watch these levels for the next directional signal from bullion.

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Chart 3
Gold is still taking its cues from the stock market. There was a short divorce between gold and the stock market earlier this week, but these two made up and got back on track Thursday. Overall, gold and stocks are still positively correlated. Therefore, expect gold to follow the stock market, which may in turn be following the Euro. The second indicator window shows the Correlation Coefficient moving into positive territory in late September and remaining in positive territory. Prior to this cross, gold and stocks were negatively correlated. Keep in mind that the Correlation Coefficient is subject to change. It is not a static indicator. Chart 4 shows Spot Gold ($GOLD) with a similar pattern. Also notice that RSI is narrowing. Watch 60 for an upside breakout and 40 for a breakdown.

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Chart 4
GOLD MINERS ETF FILLS GAP WITH FALLING WEDGE... Chart 5 shows the Gold Miners ETF (GDX) surging along with the stock market and gold at the end of November. While the S&P 500 ETF is holding the 30-Nov gap, GDX filled this gap with a falling wedge. The bottom of the gap is around 57 and GDX is trying to hold this level. The wedge, however, is still falling and gold shares are not getting a bid (buying pressure). Chartists should watch wedge resistance at 59.5 for wedge breakout.

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Chart 5
The indicator window shows the Aroon Oscillators falling with a parallel move. Currently, Aroon Down (red) is above Aroon Up (green), which means the bears have the edge. The first sign of change would be a surge in Aroon Up and cross above Aroon Down. This could be used to confirm a wedge breakout on the price chart. Chart 6 shows the Junior Gold Miners ETF (GDXJ) hitting resistance just below 31 and underperforming its big brother (GDX). I am concerned with this underperforming because the junior gold minors are more susceptible to changes in the price of gold. Relative weakness could be a bearish sign for bullion.

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Chart 6
BASE METALS ETF FORMS TRIANGLE WITHIN DOWNTREND... Chartists can watch the Base Metals ETF (DBB) for clues on economic growth and the stock market. John Murphy noted on Thursday that the DB Commodity Fund ($DBC) was on the defensive as it tests its 50-day SMA. DBB has a similar test working. With base metals at the heart of the industrial economy, a decrease in demand would likely lead to a decrease in metal prices. This would indicate economic weakness and be bearish for the broader stock market. Chart 7 shows DBB with the Correlation Coefficient in the lower indicator window. There is little ambiguity here. Stocks and base metals are positively correlated. The Correlation Coefficient dipped to the zero line a couple times, but has remained above .50 most of the last six months.

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Chart 7
The main window shows DBB moving into a consolidation since early October. The ETF broke down with a sharp decline from early August to mid October. A triangle has since taken shape as the consolidation narrows. Within the triangle, DBB broke a trendline with a big surge in late November. This is a positive development as long as it holds. A move below this breakout would be the first sign of trouble. A break below triangle support would signal a continuation of the bigger downtrend and target a move lower. Chart 8 shows weekly prices for a bigger picture. Chart 9 shows Spot Silver ($SILVER) forming a rising flag the last 2-3 weeks.

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Chart 8

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Chart 9
SPOT CRUDE HITS RESISTANCE AT KEY RETRACEMENT ... Chart 10 shows Spot Light Crude ($WTIC) hitting resistance near the 61.80% retracement. This is a weekly chart going back two and a half years. $WTIC surged to 100 in early November and then stalled the last three weeks. Crude failed to hold last weeks surge above 100 as it declined back below 99 this week. The mid November low marks a support level at 95. A break below this level would be bearish and reverse the upswing that started in early October. Chart 11 shows daily prices confirming support at 95. As with base metals, crude is positively correlated to the stock market. Should the S&P 500 break above its 200-day moving average with a rally soon, chartist can then expect crude to break above its November highs. Note that crude is up modestly today. Chart 12 shows the US Oil Fund (USO) for reference.

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Chart 10

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Chart 11
