Archive for the ‘Euro’ Category
While the market has been trending up for the past week, the pattern that is forming on the major indices appears to be that of a bear flag. To be exact these look more like bear pennants as they are triangulated. Triangles sometimes can be reversal patterns however, so until there is a breakout in either direction caution is the word.
As can be seen by the monthly chart of the SPY, the market has been finding support and resistance at it’s 20 and 50 day EMA’s. Any rally on the S&P will probably not make it past 1341 as that is also the neckline of the head and shoulders pattern. If the market breaks down further, there is a good chance that it will not bottom until it hits it’s 200 day EMA at 1181. In the declines that occured in 2010 and 2011, the market actually dropped slightly below it’s 200 day EMA before recovering.
Gold miners as evidenced by GDX look like they have finally bottomed and there are indications that they have reversed trend and are now heading up. The downtrend from the March top has been solidly broken and buy volume has been extremely strong off the May bottom.
Gold itself does not look too good however. While the double bottom from the December low has been tested twice, GLD is now hitting short term downtrend resistance from it’s May top. If it can manage to get past that line there are 2 more downtrend resistance lines that it must also get through before real progress can be made in the index. If the double bottom does not hold, with the dollar rising and banks dumping hard assets to raise cash, gold can head a lot lower.
The Euro has just broken through the neckline of a head and shoulders pattern that has been forming since September, 2010. With the neckline at 126 and the head at 148 the projected price target is 1.04. With capital fleeing the Eurozone, it appears that the only thing that will at least temporarily reverse a Euro decline is a short covering rally.
Conclusion: With chunks of Europe in a recession and captial fleeing the Eurozone, there’s an excellent chance the U.S. stock market will be dragged down until there are some signs of stability coming out of Europe. Of course another dose of QE will give the markets a lift and take the funk out of gold. Since we are in an election year, in all probability we will see more QE if the market drops too low.
Last week was a roller coaster ride for gold and miners as they both got off to a strong start but then pulled back and finally ended the week on a high note. We now have specific chart patterns and price targets that can be traded for the anticipated rally.
Gold is now trading in a wide uptrend channel and the second point in the bottom trend line has been defined. The 200 day EMA was re-tested and held. I would expect gold to move to the top of the upper channel as it did between January and February. This would give gold a technical target of 1825-1850. The technical target of the inverse head and shoulders pattern outlined in my entry of March 24 is 2,100 so there is a chance gold could break out to new highs in this run.
Gold miners as evidenced by GDX recovered from what looked like a break down below critical support levels. GDX is now trading within a wide sideways trend channel. The target on GDX is 58 or the top of the utrend channel.
Bearish sentiment on gold and miners is now unwinding and should provide fuel for this rally. The fact that oil has broken down from a flag formation is another positive sign as lower oil prices are positive for miners.
Oil has sold off because the U.S. and Europe have stated that they may tap into their strategic oil reserves in an attempt to keep oil prices down. This is a band aid approach that may help in the short term but in the long run it will not have a major effect on the price of oil. Oil is going up in the longer term but it may take a quick drop to it’s 200 day EMA at 98. Then again this could be a false break down and when the news wears off oil will be back in the 105-110 trading range.
I mentioned in my entry of March 24 that TLT bonds were having a counter trend rally and would hit resistance at the 115-116 area. Well TLT didn’t make it that far as it got hammered at 114. Friday’s action formed a bearish outside candlestick that encompassed the prior 3.5 days worth of gains. TLT may find some short term support at it’s 200 day EMA of 111.01 and the March 19th low of just under 110. but this looks like a broken trade. There is longer term uptrend support at about 95 and that is where TLT looks like it is headed.
My guess is that the 30 year bull market in treasury bonds is officially over. One way to play rising interest rates would be to buy TBT. While there can be pricing problems with double inverse ETF’s this particular one has formed a rounding bottom and with interest rates coming off almost 0 it looks like the only direction this ETF can go from here is up.
The dollar has not been exhibiting any great strength lately as many analysts had been anticipating. The Euro has in fact been slowly rising as the perception is that Europe has at least temporarily solved it’s debt crisis while the U.S. has a potentially larger one looming in the future. There are countries like Russia, China, India and Brazil that are actively working to undermine the dollar as the universl currency of exchange.
If a sovereign debt crisis were to hit the U.S. it seems unlikely that the dollar and treasuries would be the main beneficiaries of it as the entire fiscal system of the U.S would be under fire. I would anticipate that gold, silver and other hard commodities would be the primary asset classes that capital would flow into.
Conclusion: It looks like the rally in gold, silver and miners is underway. In any event some gold and silver should be a long term holding in any portfolio.
Gold has dropped below it’s 200 day moving average on the daily charts. Because of this various pundits are announcing that gold is now in a bear market.
So far the uptrend from 2009 is still intact so it appears that gold is still in a bull market. I would think that buyers will be coming in when the price meets the uptrend line which is about $150.
GLD has broken down from a rising head and shoulders pattern. The projected downside for this pattern is $147. but I suspect the carnage will end at $150. There is also a huge gap that needs to be filled between $163. and $165.
Whereas European banks may be dumping gold to raise dollars, Russia, China and India are interested in raising their stake in gold. Therefore any selling should be tempered by buying from these countries.
Silver has also broken down from a rising head and shoulders pattern. The projected downside for this pattern is $26. but it looks like a double bottom may be in at current levels. While volume on this leg down is rising, it is considerably less than the volume that occurred on the first leg down on Sept. 26 implying that the double bottom should hold as support.
Of course any good news out of Europe and the risk on trade will be back in vogue. So far however it does not appear that the Europeans are making any concrete progress in solving their sovereign debt crisis.
Conclusion: The bull market in gold is not over and even if it corrects further will probably not be over for some time. If the Eurozone truly wants to keep the Euro alive as a currency then it is going to have to print more Euros and sell Eurobonds. While the dollar may be getting a temporary pop due to Euro liquidation, it is still in a long term bear market and U.S. economic policies will eventually send it heading lower. This should ultimately be good for both gold and silver.
A few weeks ago the U.S. Dollar appeared to have bottomed and the talking heads were claiming that it was the beginning of a new bull market for the dollar. At the same time the Euro looked like it was heading into the trash can because of recurring European debt problems. Now however both fundamentally and technically it looks like the currencies have reversed course.
First the dollar broke down through long term support at 22. It then rallied back up to it’s 20 day EMA and hit massive resistance there as evidenced by the large red bar that looks like an outside bearish reversal candle stick. UUP couldn’t even make it to the downtrend line drawn on the chart. While UUP is trading in a massive descending wedge which normally breaks out to the upside, the wedge is wide and the dollar can sink a lot lower within the pattern. The MACD is also below 0 indicating a severe downtrend.
The Euro however is in a wide slightly wedge shaped uptrend channel. It stuck it’s neck below it’s 20 day EMA but then reversed course and is now trading above it. The MACD is well above 0 indicating a strong uptrend.
What is causing this reversal of fortune is a combination of fundamental factors:
1) China is dumping U.S. treasuries and is buying European debt.
2) U.S. economic data looks weak in the short term.
3) U.S. government debt problems are starting to come to the forefront of economic news.
Even if the dollar manages to head back up, there is now massive resistance at 22.
Conclusion: Commodities such as gold, silver and oil appear to have bottomed and are heading higher. As the dollar sinks further the commodity bull run should continue. Goldman Sachs now says that oil is headed higher and everytime Goldman speaks the market moves in the direction they predict. I see no reason why this time around should be different.