Editor's Note: With the markets at what appear to be a decision point, I decided to check in with Nestor to get his opinion on what's going on in the market. Long time readers of this site will recall that Nestor has accurately anticipated market direction over the past year or so, correctly being bullish when most others were bearish. In February, Nestor emailed me that the market has topped out the night before the 2/27's big market plunge.
Nestor wrote me back with the following charts and analysis, which he has allowed me to share with fellow readers, market watchers and traders:
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Michael, I am sure of one thing, and one thing only. The US Dollar is going lower.
The action on the USDX, is horrible. The best looking currencies are the EURO,
CAN$, AUS$, and NZ$. Of course, this means precious metals, base metals,
and commodities in general will continue higher.
While I hate purchasing stocks that lag, I also like safe entry points. Of all the
gold stocks that i look at, Goldcorp, Newmont, Goldfields, and Anglogold Ashanti
have sufficiently oversold conditions, and are near their weekly lows. To me, these
are safe entry points. There are however, much better charts out there. Better
a basket of 4-5 precious metal stocks than just one or two, or even small
speculative ones.
Best of Luck, and I hope this helps.
Nestor
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Nestor also sent along the following charts and commentary. Click on the charts to see an enlarged view. Hit your back button to get back to this page. Since the text is a little hard to read at this size, I've reproduced it below each of the charts:
Michael, I can not look at the chart of Gold and think anything but up. While it's not oversold, it's making higher monthly closes, and the momentum has reached a sufficiently low point, which will allow gold to rally.
The KEY is the USDX. IMO, the USD is headed substantially lower. It's near the breakpoint this week, and any further declines will see a USD collapse. Gold in such a case will move to $850-900, if not further.
From a weekly perspective, nothing has changed. Momentum has not reached oversold levels, and the yearly cycle is still many months in front of us.
So, my expectations are that the market trades sideways, as it did for most of 2004, into the cycle low in September.
Michael, to me it's clear that the market can not make a substantial new high. We are likely to stay in this range for several weeks, with no great action. I expect to drift back to the lows of March around 1370-1380 on the SP500.
You can see the action on my momentum indicators. The short-term indicator has made a non-confirming peak, and the longer term indicator has started to plunge. This is telling me pretty clearly that the market has lost momentum.
