Is the DOW Chart Crazy?

by JDH on October 21, 2017

Last week I said that the market is the best it’s ever been.  This week it’s even better.  Here’s the DOW:

The DOW was up .71% on Friday alone, and more amazingly the Relative Strength Index is over 88.  That’s nosebleed territory.

In the last six months the RSI has exceeded 70 on two occasions, and both times the DOW entered a correction lasting about a month.  Of course the RSI breached the 70 level on October 1, and here we are 20 days later and it’s still rising, so instead of starting a correction, it just powers higher.

Crazy.

It would appear that low interest rates and massive money printing are doing the trick.

(Or perhaps the economy is fantastic, everyone is working, everything is great, and there are no worries, but I doubt it).

What does this mean?  Nothing goes up forever, and and RSI at this level is highly unusual, so I don’t think this is the time to be fully invested.  However, the market has acted crazy since the double bottom a year ago, so it would appear craziness can continue for a while longer yet.  I’m not jumping in what look likes the top, but presumably if the money printing continues forever, the stock market will go up forever.

GOLD

One would assume that with massive money printing, gold would be going crazy.  Not really.  On the first trading day of 2017 gold traded as low as $1,146, and it closed on Friday at $1,280, so that’s a year to date gain of over 11%, which is nothing to sneeze at.

Interestingly the low for the last two years occurred around the new year (it was around $1,050 as 2016 started), so it appears that gold will have another positive year, but nothing crazy.  The double top around the $1,376 level, which occurred in July and August of 2016, is the resistance level that must fall to indicate gold can run much higher.  The spike on election night in November 2016 spiked gold to $1,337, but that was short lived.

Gold managed to get all the way up to $1,357 on September 8, but that was it, and it promptly fell to test the $1,260 level.

So where does that leave us?

The long term trend is up, although obviously the line has a gentle slop, not a rocket shot to the moon like the DOW is doing.  As gold makes it’s stair-step move upward, the logical way to play it is to buy as it drops to support levels, and sell when you have a small profit.

That’s the key.  If you are playing for a 50% gain, it won’t happen.  But if you are playing something like NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS, the prudent course is to take a 5% or 10% profit when you have it, sell, and then buy back in when the price eases off.

I wish I had taken my own advice.

I’m currently sitting on NUGT with an average cost of $33.79.  It’s currently sitting at $32.35.  It did trade over $35.40 on October 16, so I had I put in a sell order at $35.40 I could have pocketed over 9% for two week’s work.  Not bad.  Of course I’m greedy, and I want at least 10%, or more, so instead of grabbing the profit, I’m sitting on a small loss.

I’m not in a panic, because there is support at around $31, and again at $31.84 (the two red lines on the chart), so unless those lines are broken I’ll sit tight for another week and see what happens.  I see no reason why we can’t get back to the $35 level again in short order, at which point I cash in and count my pennies.

Of course there is always a chance that something big happens (perhaps in North Korea), at which point gold spikes and instead of pennies, I make a few dimes, or perhaps quarters.

I’d be fine with that.

Thanks for reading.  Perhaps I’ll have good news to report next week.