China Teeters & Gold Pushes Higher

China FXI (Stock Market Proxy ETF) Chart

 
•    China is the world's second largest economy, and the fastest growing major one. They are also the biggest exporter, and the second largest importer.

•    China overtook America in 2010, and became the world’s largest manufacturing nation. This Chinese stock market chart could be called a thermometer of the health of global manufacturing.

•    There is a head and shoulders top in play, which could be foreshadowing a global recession.  While nothing is confirmed unless the neckline breaks (at about $34), investors should keep a close eye on it.

•    A recession could prompt more monetary stimulus, and boost gold prices. 

Dow Topping Process Chart

 
•    It’s possible that the top pattern in place on the Chinese stock market is a leading indicator of what is coming to America.  Note the enormous distribution volume occurring on this chart.

•    In the short term, the slow Stokes and CCI suggest that the Dow could rally a bit, but I think that if the 50 day moving average breaks, a decline down to 14,400 is likely.

•    From there, I’m projecting a rally to about 15,000, followed by a bigger drop to the 13,800 area.

Gold Channel Chart

•    This weekly chart shows gold trading in a channel, and it is extremely oversold.  Note the position of the RSI oscillator, at the top of the chart.  It’s now in a rising trend above 30, after reaching the lowest point in the history of this chart.

•    Even if the current rally failed, there’s good support between $1227 -$1260. I’ve highlighted that with a thick blue line.

•    The position of the oscillators suggests that gold could rally to the red channel line, which currently sits at about $1580.

Gold Summer Rally Chart

•    The road to $1580, if it happens at all, may not be a smooth ride.  There is strong Fibonacci resistance at about $1503. 

•    I want to see two consecutive closes above $1421.60 before I’ll be confident that gold can get to $1503.

•    The good news is that MACD and RSI indicators are both predicting higher prices.

•    The low volume demonstrates a lack of confidence in any such rally, but this chart doesn’t show any of the substantial physical gold buying taking place in Asia.

GDX Power Volume Chart

•    The bullish gap that occurred on strong volume about a week ago has not been filled, but GDX is struggling to trade above $30.50.

•    Over the past two weeks, there has been good volume in the senior and intermediate gold stocks, and consistent rallies into the close. It’s always a positive to see closing numbers well off the lows for the day,creating long-tailed candlesticks on the chart. 

•    Obviously, I’d prefer to see gold stocks rally every day (!), but that’s not realistic.  A pullback to the $28 area would fill the gap, and set up an inverse h & s bottom formation.

GDX Short Term Chart

•    The short term technical picture is also improving. Note the inverse head and shoulders formation on this 60 minute chart.  There’s also an irregular cup & handle pattern. 

•    This chart also clearly shows the price is hesitating in the $30.50 area

•    An upside breakout would occur at about $30.75, with a target of $35- $36.  

GDXJ Trendline Breakout Chart

•     Over the past week, the downchannel has been convincingly taken out, on pretty good volume.

•    Volume has decreased over the past few days, while GDXJ has just drifted sideways, and that’s technically bullish.

•    A summer rally could see GDXJ rise to about $16.

Silver COT Report Chart

•    Based on this sentimentrader.com chart, commercial traders are now about as bullish as they were way back in the year 2001.

•    The public is extremely bearish, and so are hedge funds. 

•    Silver is much more volatile than gold, so investors need to be comfortable with large drawdowns.  I wouldn’t waste much time trying to call the exact bottom.  I like buying modest amounts of silver on $5 drops, and storing it outside the banking system!