Friday’s markets were relatively quiet but there was one development that took my eye – the US dollar was stronger but despite this gold made quite a good recovery. This is particularly noteworthy as gold is hitting up against its first resistance so was a nice sign of strength. And once more we saw a new all time high close in palladium. This market has been an excellent indicator of recent times. Until the Chinese market gets back to normal, I think there will be quite a bit of indecision around gold.
And talking of indecision, the stock market was also in this mode. The Dow has now had seven weeks up. Ok, there is no magical level at which a market has to correct but seven weeks is getting rather extended. I have mentioned before, that we needed a bit of time here before we could clearly see whether the next leg of the bear market was upon us or whether there was still some fuel left after the huge rally we have had since the Christmas Eve sell-off. And yes, as I have mentioned before, I cannot rule out a final melt-up but I would be surprised. Of course there are quite a few forces that would prefer this option but those some sources weren’t able to avoid the “melt-down” we had late last year.
On the local scene, I have a growing divergence between the XJO and one of my indicators. Divergences don’t have to be resolved immediately – they are a warning signal but there is a lot of overhead resistance coming up at 6100.
I’m considering the possibility that our gold index, XGD, might be forming a running correction. If it is, it is an extremely bullish pattern and gives an initial target of 6700. So something else I will be watching it closely. In the meantime, I love the fact that the XGD is sitting on the highs of 2016. Now that the holiday in China is drawing to an end, I think we might see a bit more action again in this sector.
And on to my main worry at the moment – the steaming coal price. I know we got to this very point a month or two ago and there was just enough buying power to rally the market from such a crucial level but I cannot stress strongly enough just how crucial it is for some of that residual buying to once more appear. Perhaps with the end of the Chinese holiday, there might be a reprieve, but we had better start praying – it is that serious.
(20min delay)