A few charts to review as we enter the final quarter of 2010.

Regards - VHF

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Gold jumped $22.50 U.S. per ounce (1.74%) last week to close at an all time high. Strength is directly related to weakness in the U.S. Dollar. Short term momentum indicators are substantially overbought, but have yet to show signs of peaking. Gold bullion has a history of entering into a one month seasonal correction starting in the first week in October followed by additional strength in November and December.

Despite strength in gold, gold equities and related ETFs peaked ten days ago. Short term momentum indicators have rolled over from overbought levels. Gold equities have a history of entering into a one month correction from late September.

Silver gained another $0.65 per ounce (3.0%) last week. Strength relative to gold remains positive. Short term momentum indicators are overbought.

Platinum gained another $36 per ounce last week. Strength relative to gold recently has been neutral. Short term momentum indicators are overbought.

Copper gained another 7.25 cents per lb (2.0%) last week. Most of the gain came on Friday on news that China’s purchasing managers index grew at a faster than expected rate in September. Copper broke resistance at $3.68 on Friday to reach a 15 month high. Short term momentum indicators are overbought, but have yet to show signs of peaking.

The CRB Index gained another 2.06 points (0.73%) last week. All the gains came from crude oil, gasoline and precious metals. Short term momentum indictors are overbought, but have yet to show signs of peaking.

Crude oil gained $5.18 U.S. per barrel (6.77%) last week. Short term momentum indicators reversed last week and now are overbought. Resistance is at $83.05.

Gasoline added another $0.15 per gallon (7.73%) last week. Short term momentum indicators reversed last week and currently are overbought.

The U.S. Dollar Index plunged another 1.30 last (1.64%) last week. The Index has declined 6.6% since its August high and 12.0% from its June high. The later is unprecedented. During this time, the S&P 500 Index has gained 10.2%. Conclusion is that almost all of the gain in U.S. equity markets during the past three months can be attributed to weakness in the U.S. Dollar. Short term momentum indicators are substantially oversold, but have yet to show signs of bottoming. Next support is at 76.60.

Seasonal influences for the U.S. Dollar Index briefly turn positive at the end of September and turn negative for the Canadian Dollar

U.S. Dollar Index Futures (DX) Seasonal Chart

Canadian Dollar Futures (CD) Seasonal Chart

Significance of weakness in the U.S. Dollar on equity markets since early June is better explained by looking at performance of the S&P 500 in terms of the Canadian Dollar and the Euro. Since highs early in June, the S&P 500 Index in Canadian Dollars has gained less 1.0% and the S&P 500 Index in Euros has fallen 9.6%. Needless to say, Canadian and European investors holding U.S. equities, funds and ETFs are not “happy campers”.

Currency traders are talking about the Federal Reserve’s manipulation of the U.S. Dollar on the downside (Rather ironic given actions by the House of Representatives last week to accuse China of currency manipulation). Weakness in the U.S. Dollar will be a focus of discussion when the IMF meets in Washington at the end of this week.

Conversely, the Euro gained 2.87 (2.13%) last week despite trader concerns about Ireland, Portugal and Greece. Short term momentum indicators are substantially overbought, but have yet to show signs of peaking.

The Canadian Dollar gained 0.51 U.S. last week. It is testing overhead resistance at 98.70. Short term momentum indicators are overbought and showing early signs of rolling over.

The S&P 500 Index slipped 2.43 points (0.21%) last week Intermediate trend remains up. Support is at 1,039.70. Next resistance is at 1,219.80. The Index remains above its 50 and 200 day moving averages. Downside risk on a correction is to its 50 day moving average currently at 1,105.42. RSI has rolled over from the 70% level. Stochastics moved below 80% on Friday. MACD is about to complete a negative cross over from an overbought level.

The Dow Jones Industrial Average slipped 30.58 points (0.28%) last week. Intermediate trend remains up. Support is at 9,936.62. Resistance is at 11,258.01. The Index remains above its 50 and 200 day moving average. Downside risk on a correction is to its 50 day moving average currently at 10,480.33. RSI has rolled over from just below 70%. Stochastics moved below 80% on Friday. MACD is about to complete a negative cross over from an overbought level. Strength relative to the S&P 500 currently is mixed.

The TSX Composite Index gained 158.22 points (1.30%) last week. Intermediate trend changed from neutral to up after the Index broke above resistance at 12,321.76 to reach a two year high. The Index remains above its 50 and 200 day moving averages. Short term momentum indicators are overbought and showing early signs of peaking. Strength relative to the S&P 500 Index is mixed. Downside risk on a correction is to its 50 day moving average currently at 11,921.72.

The yield on 10 year Treasuries slipped 9 basis points last week. Seven week trading range is between 2.42% and 2.83%. Short term momentum indicators are oversold.

Conversely, long term Treasury prices gained $1.11 last week. Short term momentum indicators are overbought.

The Baltic Dry Index was virtually unchanged last week.

The VIX Index rose 3.6% last week. Short term momentum indicators have started to recover from oversold levels.