This market for most of 2009 has been all about the US Dollar and its inverse relation to equities and commodities. I've noted over several posts that I expected a rally upto the 78 level ~link~. But now the charts are suggesting that more upside might be in store.
I've annotated several charts of the dollar, gold, silver and two Itz Pix stocks; Yamana (AUY) & Silver Wheaton (SLW) and some key support/resistance levels.
The Dollar break seems to be carrying all of the proper technical credentials that might allow it to transform into a major trend reversal- eventually. The possibility of higher interest rates for "2010 forecasts" currently promoted by analysts in the media as 2009 approaches year end has investors fearing an end to the dollar trade.
Gold is trading over it's 30 week moving average and appears ready to track higher towards its 38.2% Fibonacci Retracement level of 80. Having already rallied nearly 4 points, from 74 to 78 in a few weeks. While gold has retraced from $1225 to $1090 or $135 (11%). Based on these moves, gold should then have another $60 downside as the dollar rises 2 more points towards the 80 level. I've held to the $1075 area inwhich to add or begin buying more gold for several weeks now. More than likely the movement will overshoot to the downside as it has to the upside.
Yamana Gold (AUY) is looking very atractive as it approached the $11 area, not a bad spot to begin accumulating, however watch for a reversal higher to confirm and hold to $10 as a stop. Joe Terranova on CNBC's Fast Money comments on gold. ~read~
As for the price of Silver, the charts indicate that the $16 level maybe be next as key support. If so that would pressure Silver Wheaton (SLW) as well as Hecla Mining (HL) to trend lower. For those who agree on lower silver prices should consider selling a forward month covered call . Perhaps a SLW Jan at the money ($15) for $0.70? (almost 5% yield)
Bottom line, the dollar may trend higher as we close out 2009. Longer term, the fundamental outlook for the US Dollar doesn't seem likely to improve, at least not until the deficit spending is brought under control. However, the dollar has already experienced two powerful bear market rallies since early 2005, and this current move certainly looks like it has the makings of rally number three. The transition into 2010 looks like it will be an inflection point.
*click charts to expand images
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