buysignals.com
Thursday , February 4, 1999
Buy Gold! (Rydex's Precious Metals Fund)
Gold stocks' strong move today is the show of conviction required (following a downside retest like yesterday's) to confirm an up-trend. Now that these two momentum lines have crossed upward, this sector is measurably more attractive. Avoid down trends. Participate in confirmed up trends. We'll see if our patient strategy will be rewarded.
A strong U.S. economy and rising Japanese interest rates are sparking inflation worries, and from a technical view, this sector has broken clearly above major moving averages at XAU 67.4. Both fundamentals and technicals lend support for higher prices in the near term.
In a down trend, price in this sector will typically fall in 4-7-day increments with 1-2-day respites. In a rising trend, the opposite is true. This move began with an 7% gain in four days from the 1/27 low. Yesterday's -2.4% decline may have been sufficient to jettison disbelievers recovering from -18% losses from 1/11. This trading pattern suggests a continuation of strength into the middle of next week. If we enjoy a large gain tomorrow, however, we may lock in the profit.
With selling pressure relieved yesterday, price can now move on to a stronger 'third wave'. Third-waves are often the most powerful and often exceed the first move by 60%. This segment of price movement is the most desirable! Measuring from yesterday's close, a 10.8% gain would place the XAU at 71.2 (now 68), making the short-term potential of this trade about 5%.
Underpinning the outlook for higher gold prices is a turn up from 52-week lows in copper stocks and decided weakness in interest-dependent issues like banking stocks. Whether inflation is, in fact, resurging is irrelevant to us presently. Investors' perceive that it is and that's what moves price, even if it is irrational and wrong much of the time. |
