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Stocks lower on weaker consumer confidence

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Stocks continue to edge lower after this morning's 10:00 AM release of August's consumer confidence report that slipped to 93.5, which was below consensus of 97.0 and lower than June's revised lower reading of 97.1.

The lower reading in consumer confidence was a bit of a surprise to economists when considering the gains found in stocks for the month of August, which found the broader S&P 500 Index (SPX.X) 940 -0.85% recovering from late July's bottom near 800.

Today's sector gainer has the Gold/Silver Index (XAU.X) 67.69 +3.35% finding buyers as investors anticipate a potential U.S. attack on Iraq. Technicals here have the XAU.X at two key levels of near-term resistance and a break much above the 68.00 level (session high has been 67.90) could have bullishness gaining as sector shorts may run for cover. One key level of technical resistance is found on the bar chart as the sector rallies right to a trending lower 50-day simple moving average. More important perhaps is the $1.00 box scale of supply/demand as depicted by the point and figure chart of the Gold/Silver Index (XAU.X).

Gold/Silver Index (XAU.X) - $1 box

Technically speaking, the Gold/Silver Index (XAU.X) is perhaps the most interesting sector chart today. Current trading levels are at two levels of key technical resistance. This group of stocks is more of an "emotional" group and very suspect to short- squeezes to the upside and complete collapses to the downside when sector bulls decide to leave.

Back in June, sector bulls carried the bulk of the risk up in the $80-range when the sector bullish % from Dorsey/Wright and Associates showed the sector at 80% bullish. Not long after, a glaring spread-triple-bottom sell signal at $82 was a bulls first alert to longer-term weakness. Once bullish support trend (blue +) was broken to the downside, the bearish resistance trend (red +) has been firm resistance.

A recent triple-top buy signal in the sector at 63 is a hint that demand is beginning to outstrip supply and the sector bullish % has recovered from a July low reading of 14% to reverse back up into "bull alert" status at 32%. This action has us standing "bull alert" and looking for a technical break higher at 68.00 on the XAU.X for a push higher.

Many subscribers have asked for stocks to trade bullish in the sector. To be honest, most of these stocks all look very similar on a technical basis. The "key stock" in the group from an "unhedged" position (in that they don't hedge their gold production) is shares of Newmont Mining (NYSE:NEM) $27.51 +2.57% while another sector heavyweight that does hedge their production is Barrick Gold (NYSE:ABX) $15.66 +2.55%.

Traders that will compare the two will see that during a sector decline, the "hedged" stocks usually perform somewhat better than the "unhedged," while a sector advance usually has the "unhedged" then outperforming the "hedged." This can be easily recognized on the bar charts as it relates to the stock's current trading and 50-day simple moving averages.

Jeff Bailey
Senior Market Technician
Option Investor


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