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Gold futures give confirmation to gold stocks

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With this morning's spread-triple-top buy signal in the Gold/Silver Index's (XAU.X) $74.84 +6.03% point and figure chart and break of trend, gold equity bulls turn to the futures market to look for price confirmations from the commodity itself and find it with various futures contracts showing some upside action.

The February 2003 Gold Futures (gc03g) have also made a rather meaningful break higher of the 330 level, which had been formidable resistance on this contract since last summer. This contract now looks to challenge the contract high of $333.70 and any thing above that will leave both bullish and bearish traders "guessing" at further upside. That type of action could trigger some short-squeezes for bears that have been consistently shorting the 330 level as upside risk becomes uncertain.

February Gold Futures (gc03g) - Daily Chart

The February gold contract is breaking out of a rather large bullish wedge that has seen past resistance taken out to the upside, after a pattern of higher lows from this summer. Dorsey/Wright and Associates (www.dorseywright.com) also tracks commodity futures on their point and figure charting system and the February Gold futures chart shows a recent test of longer- term bullish support trend at $317 finding a then completed triple-top buy signal at $323 and completed bullish vertical count column, which hints at 357. Look for further bullishness on a break to new highs and potential target in gold to 350, which would be "conservative" based on a 357 bullish vertical count. Note today's volume spike on the break above 330, which was most likely a key level observed by other market participants.

Also on the commodity front is the March Light, Sweet Crude Oil futures (cl03h) $27.50 +1.7% continuing to edge higher after a recent break above the $27.25 level of technical resistance earlier this week. Action here hints of "war fears" with Iraq as OPEC ministers officially decided to increase cumulative production by about 6% from the current 21.7 million barrels per day rate. The Oil Index (OIX.X) 259.59, which represents a basket of oil exploration/producers in trading unchanged.

Industry analysts believe OPECs decision to boost production among its 10-member's (excluding Iraq) was to send a message to non-OPEC producers that may be "cheating" and over producing. The message being.... "quit cheating and prices will stay stable at a higher level. Cheat and overproduce, and we'll show you what overproducing will do to prices."

While gold makes a bold move higher, it has been a "sloppy" trade for the major equity indexes that have seen up, down, up, and then down again action.

Currently, the indexes are lower with the Dow Industrials (INDU) lower by 54 points at 8,634. The broader S&P 500 Index (SPX.X) has edged back below the 900 level at 899.72, while the tech- heavy NASDAQ-100 Index (NDX.X) 1,033 is lower by 2.5 points.

Sector action is quite mixed, with the Gold/Silver Index (XAU.X) 75.34 +6.71%, Dow Jones Home Construction (DJUSHB) 300 +2.4% leading gains. Biotechs (BTK.X) 357 +1.5%, Broker/Dealer (XBD.X) 424 +1.4%, Oil Service (OSX.X) 89 +1.35% and Natural Gas (XNG.X) 142 +1.5% are sectors showing gains greater than 1%.

Shares of biotech giant Amgen (NASDAQ:AMGN) $50.15 +6% is the stock driving today's biotech gains after the company guided FY02 and FY03 EPS higher. The sector bellwether said it sees EPS of $1.37-$1.39 (consensus $1.36) for 2002, while it forecasted early guidance for 2003 between $1.70-$1.80, which would be 5-cents above consensus estimates. The company also updated investors that Wyeth has sold approximately 55 million shares of the 98 million shares of AMGN that it had received from AMGN's acquisition of Immunex.

Downside sector action is rather limited with Semiconductor (SOX.X) 320 -1%, Insurance (IUX.X) 261 -1% and Drugs (DRG.X) 304 -1% the weakest sectors in the first half of today's trade.

Jeff Bailey

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