Nightly Report - 15.12.2011

The SP500 rallied slightly today, but closed for the second time below the middle BB and below the 50MA.
It should reverse soon or the November low will soon be attacked, which is also where the lower BB comes in right now…

Gold acted weak today despite dropping about 3.5% yesterday. The fact that it couldn’t recover any of its losses is a sign of weakness.
We need to see a bullish hammer candle in order to start thinking of a bottom. The reason why is that a bullish hammer is formed by a long tale and a body that is close to the highs of the day. This can be explained by the fact that initially sellers rule the market place, but then the buyers step in and price closes around the highs of the day. That’s a sign that the buying forces are stronger than the selling forces. So far, we haven’t seen that yet, so the $152 support for GLD ($1,565 Gold) might break over the next couple of days…
However, RSI is oversold. As posted earlier today, the Bullish % index is reaching extreme levels again.

As expected (see last night’s report), silver showed some signs of life, as it closed sharply below the lower BB yesterday. However, the bounce today was small, indicating that buyers have not taken control of price (yet). However, price closed yet again below the lower BB, making it possible that silver might recover some more over the next couple of days.
The Bollinger Bands still need to start widening, which is a very bad sign for silver going forward. The September low of $26 comes into focus.

I was looking at some charts of 2008, and below you can see the chart of the SP500 (the candle stick chart shows the current price, while the red line chart shows price in 2008). I have often said that the current situation is eagerly similar to 2008.

When I lay one chart on top of the other, we get the following result:

If the pattern holds, we could be in for a severe deflationary period. This would certainly NOT be good for gold and especially silver.
However, at current prices I still like to buy physical gold, even though it could plunge along with stocks in case of a 2008 remake.
For some people this might sound very strange. The reason why, is that if we get another “2008?, I expect this to be much worse, and the whole financial system could collapse.
Imagine if it happens… What would you like to have in that case? I am afraid the money in the bank will be GONE. For the 2% interest you currently get, it’s not worth the risk in my opinion. I would rather loose 30% on my PHYSICAL gold holdings than losing it all in the bank. The gold I can sell (be it at a much lower price than today). If the banks fall like dominos, there’s nothing left…

Don’t misunderstand me, there ARE stocks out there that are extremely attractively priced at the moment. But a 2008 won’t save these stocks from plunging.

What would happen to gold stocks if we would get another 2008?
In the following chart which divides the HUI index by the price of Gold, I pasted the rectangle from 2008 to the current situation.
If the pattern holds, Gold stocks will crash much more than gold.
Please notice also that the ratio seems to be stuck in a triangle pattern, which – if it breaks to the downside – would get VERY ugly…

To end this update, I would like you to have a look at the following QUARTERLY chart of Gold.
Back in 1980, we had an exhaustion candle which marked the end of the bull market.
We currently have an exhaustion candle as well (there’s only 2 weeks left in this quarter, so the chances are small that gold will climb $200 to negate this bearish hammer). Also notice that the Quarterly RSI is EXTREMELY high.