Six-month rally getting long in the tooth

When we started this blog on Sept. 4, 2007, the day gold broke out of its 15-month-long triangle, few would have been bold enough to predict that the price of the yellow metal would be nearly 50% higher just six months later. (The U.S. dollar index, near 81 at the time, has collapsed to 73.)

Our indicators and, especially, our trend lines have kept us onside for virtually the entire rally, although there were a couple of weeks when its potency and longevity surprised us.

But trees don't grow to the sky, and there are signs that a significant correction is in store. Gold has not revisited its 200-day moving average since mid-August and not even its 50-day MA since mid-December. One or both of these are likely to be touched before gold is able to make serious headway into the four figures.

If we are wrong and gold's rise continues unchecked, a more substantial correction would be necessary in the near future to relieve its hyper-overbought condition.

Upside: Friday's candlestick, with a long uptail and a small real body, resembles a graveyard doji, which often precedes a reversal of a downtrend.

Resistance: Top of channel, near $1,000 round number.

Downside: Significant resistance apparent at top rail of channel. RSI falling from overbought levels, repelled at 70. Bearish divergence in MACD. MACD-Histogram declining.

Support: Bottom of channel; green uptrend line; 50-day MA.

Bottom line: Correction beginning, but one brief, last gasp upward can't be ruled out.

Upside: Friday's long-tailed doji candlestick is a sign of uncertainty in the market. The breached top rail of the channel could conceivably provide support.

Resistance: Recent high at $21.33.

Downside: Congestion at top of channel suggests significant resistance. RSI declining from exceptionally overbought levels. MACD flattening out at exceptionally overbought level. MACD-Histogram declining.

Support: Green uptrend line; thin blue uptrend line; bottom of channel.

Bottom line: Correction beginning, but congestion phase of topping process may not be over.

Upside: Silver hasn't quite reached the top of the channel from the summer of 2005. RSI and MACD, while extremely overbought, are still rising and haven't reached the levels seen at the May 2006 blowoff top.

Resistance: Top of channel, a little under $22.

Downside: RSI, MACD and MACD-Histogram at extremely overbought levels.

Support: Thin blue uptrend lines; bottom of channel.

Bottom line: Blowoff tops like this one can go to greater extremes than one might expect.

Upside: GDX hasn't quite reached the top of the channel.

Resistance: Red line; top of channel.

Downside: Significant resistance is apparent at the red line connecting the recent tops. Friday's drop confirmed Thursday's bearish hanging-man candlestick. RSI and MACD-Histogram declining. MACD may be making a bearish divergence.

Support: 50-day MA; bottom of channel.

Bottom line: Correction beginning.

Upside: Friday's candlestick, with a long downtail and a small real body, resembles a hammer doji, which often precedes a rally. The U.S. dollar index is just beneath its channel and could re-enter it. RSI and MACD-Histogram are extremely oversold and turning up.

Resistance: Bottom of channel; Fibonacci line at 74.8; 50-day MA.

Downside: The dollar has broken down from its channel and may be testing the bottom rail.

Support: Friday's all-time low: 72.46.

Bottom line: After its huge one-month plunge, the dollar may be due for a bounce.

Upside: The dollar index has just entered the oversold zone. It has bounced from similar levels in the past.

Resistance: November low at 74.48.

Downside: The index has broken down from a congestion zone. RSI is falling. MACD has made a bearish crossover.

Support: None.

Bottom line: The dollar's secular decline is far from over.