Brief uptick coming on the Dow this week; Gold also looks higher

by JDH on May 22, 2010

Today’s commentary will be shorter than normal (for which I’m sure you will all be thankful), for two reasons. First, Monday is a the Victoria Day Holiday here in Ontario (and a few other provinces as well), so the markets will be closed on Monday. Traditionally known as the “May 2-4 weekend”, this is the weekend where we Canadians either start our gardens, or open our cottages and start drinking “2-4’s” of beer. I don’t have a cottage, and I’m not a big beer drinker, so my focus this weekend will lean more towards gardening. We’ve had some warm weather, so most of the garden is well on it’s way, but time is of the essence, so let’s get too it.

First, the markets.

As you can see from the chart, from the beginning of February through to the middle of April the Dow went up almost without pause. Then came the mid-May crash, and bounce, and retest of the lows. I’ve drawn a horizontal line across the bottom, and it’s obvious that the lows on the 1,000 point crash day were exactly the lows of February. That’s about as obvious a “re-test” as you will ever see, and it held. On Friday the Dow dropped at the open to 9,918, just shy of the February and early May lows, and then it bounced, closing at 10,193, just shy of the high for the day.

So what does this mean? My guess is we are due for a bounce early in the week, probably up to the 10,300 or even 10,600 level.

After that bounce, I would assume that the bear market will continue, taking the Dow down well below the 8,000 level, probably coming to rest much lower than that.

How am I playing this?

Early on Friday I bought some RSU – Rydex 2X S&P ETF to play the bounce. I paid $29.86, and it closed Friday at $31, so we are moving in the right direction. I assume I’ll be selling early to mid week, and that will be it.

Now, to gold.

It looks to me like the bull market remains in force, despite minor drops along the way. Gold has pulled back from it’s oversold levels of a week or two ago, and if I had to guess, I would assume that this correction will soon be over. Very soon. Like this week.

I am not selling any of my gold holdings, and in fact I added to my holdings this week on the dips. I suspect I will be looking back a few months from now and will think that these prices were bargains, so now is not the time to sell.

Apparently they agree with me in China:

(And no, the quote from George Soros was not correct. He did not say that “gold is in a bubble”; he said that gold “is the ultimate bubble”, but Soros is still buying gold, because he believes there is lots of room for gold to run; the “bubble” may last for many more years).

One final note: My stink bids were filled on CMK.TO – Cline Mining Corporation, so I increased my holdings this week.

So, to summarize: the market will go up early this week, and gold looks higher from here as well.

Those are my thoughts. Happy May 2-4 weekend. See you next week.

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