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Erik McCurdy
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Erik is the senior market technician for Prometheus Market Insight and has been performing chart analysis since 1995. The software program that he developed to monitor long-term stock market trends has correctly identified 92% of the cyclical turning points in the S&P 500 index since 1940. His... More
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  • Gold Follows GCI Below Bull Market Support 0 comments
    May 14, 2012 12:44 PM | about stocks: GLD, SGOL, GDX

    Since the current secular bear market in stocks began in 2000, the US Federal Reserve has been engaged in a historic liquidity operation intended to defend against deflation. Following the financial crisis in 2008, the monetary base has expanded by 200 percent.

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    As a result, the gold market, which is the most sensitive to underlying inflationary pressure, entered a secular bull market in 2001 that continues today.

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    Early last week, we noted that gold had moved below support at the lower boundary of the cyclical bull market from 2008. On Friday, gold closed near weekly lows, confirming the break below cyclical uptrend support and moving slightly below congestion support in the 1,600 area. The cyclical breakdown is a meaningful bearish signal that favors a continuation of the correction that began in September 2011.



    (click to enlarge)

    The cyclical breakdown that occurred last week was predicted by the negative divergence that developed in early April when our Gold Currency Index (NYSE:GCI) closed below support at the lower boundary of its cyclical uptrend.



    (click to enlarge)

    The corresponding uptrend in the US dollar index that began in late August 2011 has been consolidating since January and the rebound off of uptrend support during the last two weeks has caused the consolidation formation to develop a bullish character, indicating that the rally is attempting to resume.



    (click to enlarge)

    As we often note, charts do not always have an interesting story to tell, but when they do, it is important to listen to their message. The intermediate-term trends in gold and the US dollar that began last year are attempting to resume, so it will be important to monitor market behavior closely in May. We will identify the key developments as they occur in our daily market forecasts and signal notifications available to subscribers.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: GLD, SGOL, GDX
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