NIKKEI SURGES ABOVE OCTOBER HIGH -- DOLLAR SURGES OFF KEY RETRACEMENT ZONE -- GOLD BOUNCES WITHIN FALLING FLAG -- GOLD MINER ETFS HIT INFLECTION POINT
NIKKEI SURGES ABOVE OCTOBER HIGH... Link for todays video. Asian markets moved higher on Wednesday with the Nikkei 225 ($NIKK) leading the charge. I featured the Nikkei in the Market Message on January 23rd as it surged above 8750 and weekly PPO moved above its signal line. Chart 1 shows the index continuing higher the last four weeks and breaking the October high. Note that this is an end-of-day (EOD) chart, which means it will be officially updated after the close. Though not marked, the Nikkei surged over 2% on Wednesday and closed at 9260. With this move, the index is poised to break the falling wedge trendline. Such a breakout would signal a continuation of the prior surge and target further strength towards the 2010-2011 highs.
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Chart 1
The indicator window shows the Percent Price Oscillator (PPO) moving above its signal line at the end of December and continuing higher this year. Although not yet positive, momentum is clearly moving in the right direction. The lower indicator window shows the Correlation Coefficient ($NIKK,$TNX). Believe it or not, the Nikkei is positively correlated with the 10-year Treasury Yield, which means we may see a rise in the 10-year Treasury Yield. Rising interest rates in the US point to economic expansion and this is positive for the Japanese economy, especially the exporters. Chart 2 shows daily prices and the next resistance zone in the 10000-10200 area.
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Chart 2
DOLLAR SURGES OFF KEY RETRACEMENT ZONE... The Dollar is showing signs of life with a reversal brewing in a key retracement zone. First, lets review the long-term picture. Chart 3 shows the US Dollar Fund (UUP) zigzagging higher since August. Even though the Dollar has not gained much since the summer low, the trend here is clearly up with a breakout, higher low and higher high. The spring high turned into support just below 22 and the ETF firmed in February.
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Chart 3
Chart 4 shows daily candlesticks with UUP reversing course in the 50-61.80% retracement zone. The ETF surged over the last four days with the sharpest four-day move since early January. Notice that the 4-day Rate-of-Change moved above 1% for the first time since January 9th. Consider this a momentum thrust. UUP broke the January trendline and is poised to break above resistance from the early February high. Such a breakout would signal a continuation of the prior advance and target a move above the January high. The Euro remains the main driver for the US Dollar. Fundamentally, both the US and European central banks are in easing mode with their own versions of quantitative easing. The Fed, however, started its QE programs earlier and is therefore likely to finish earlier. Also note that the US economy is stronger than the European economy and this may push US interest rates higher sooner, which would be bullish for the Dollar. Chart 5 shows the Euro Currency Trust (FXE) breaking the wedge trendline and testing support around 130.
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Chart 4
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Chart 5
GOLD BOUNCES WITHIN FALLING FLAG... After big gains in January, the Gold SPDR (GLD) consolidated with a shallow pullback in February. This pullback looks like a falling flag, which is potentially bullish, but the ETF has yet to reverse this fall. Chart 6 shows GLD opening strong on Wednesday and then selling off as the Dollar moved higher. For the most part, gold and the Dollar remain negatively correlated. Also note that gold and the stock market are largely positively correlated. Both Correlation Coefficients are shown in the indicator window. At this point, I view the wedge breakout and surge above 170 as bullish. A move back above 170 would break falling flag resistance and signal a continuation higher. Failure to breakout and further strength in the greenback could extend the decline to the 160-162 area. Chart 7 shows the Silver Trust (SLV) with a flat consolidation the last three weeks.
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Chart 6
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Chart 7
GOLD MINER ETFS HIT INFLECTION POINT... With gold correcting the last 2-3 weeks, the Gold Miners ETF (GDX) and Junior Gold Miners ETF (GDXJ) retraced a portion of their prior surges. Chart 8 shows GDX surging at the end of January and then correcting back to 54 in February. The decline carried the ETF back to the breakout zone and the trendline extending up from late December. This is a make-or-break point for GDX. Further weakness would break the trendline and negate the late January breakout. The February decline looks like a falling flag of sorts. The short-term trend is down as long as this flag falls and last weeks gap holds. A move above 55.50 would break flag resistance, fill the gap and clearly reverse the February slide4. More importantly, this would signal a continuation of the uptrend that began in late December and increase the chances of a bigger breakout. Chart 9 shows the Junior Gold Miners ETF (GDXJ) with a similar setup.
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Chart 8
