Half Term Market Reports
STOCKMARKETS
Nothing has really happened on either the London Stock market or Wall Street so far this year apart from prices edging steadily higher. Interesting to note though that some of the one day down moves have been quiet sharp and vicious.
We still very much stand by our forecasts made in last month's newsletter that the Stockmarkets are likely do nothing in 2007 apart from trade in a wide trading range.
For the traders that means short when things look very good and buy when the market looks terrible and it feels that it's about to implode. In fact, long term investors if they still want to accumulate stocks should take advantage of the market anytime this year when fear is running wild on the downside.
Remember the money trade since 2003 has always been to buy on these sharp retracements and until this simple strategy stops working we should continue to respect it. Yes, it's hard to buy in such circumstances (like last summer) but long term readers of this newsletter will be familiar with one of our favourite trading/investment maxims -
GOLD
Back in the November 2006 newsletter we suggested that the end of February 2007 was a very important time for the Gold market as that was a possible date for it to break out to new highs above $750 - see original article here.
With Gold now around $680 and with only 4 trading days left in the month it's got to rise by an average of nearly $20 a day to make the $750 level. OK, it's not going to make it but the market has recovered very well this week after it suffered a $15 fall last Tuesday.
The November research was purely speculative and we would have been surprised if it had come to fruition. But if it proves one thing it reinforces the tried and tested political rule that you can offer a price forecast OR a date but never the two together.
Still, Gold looks good, there's definitely some buying interest coming in so far this year, and with the long term trend higher we see no reason why the strength can't continue.
As for Gold stocks some of them have been perky so far this year but we believe that Gold really needs to break above $750 and get some heavy media coverage before the mining stocks can really start to explode. The two charts below are of the American AMEX Gold Bugs Index (HUI) and the Gold & Silver Index (XAU). The HUI consists mainly of Mining companies that do not hedge much of their output while the XAU consists of 16 of the largest Gold & Silver mining companies. As a rule of thumb the HUI is supposed to outperform the XAU with a rising Gold/Silver price and vice-versa but with the psychology so complex in the mining sector we wouldn't put much money on relationship being perfect.
The two charts below show that for the last year the major Mining Stocks have been in one massive trading range BUT it would only take around a 15% move to break out to new highs which would no doubt get the media going.
Weekly Gold Bugs Index - June 2005 to present
