The Dollar Index has been falling since the start of the year. Respect of support at 100, however, would signal a primary up-trend.
Gold advanced as the Dollar fell. Support at $1200/ounce suggests another advance, this time to $1300, but a lot will depend on the Dollar.
The Dollar Index paused in its advance and is likely to retrace to test the new support level at 100. Target for the advance is 107*.
* Target medium-term: 100 + ( 100 – 93 ) = 107
Gold paused in its primary decline, in response. The target is unchanged at the December 2015 low of $1050/ounce. Retracement that respects the resistance level at $1200 would strengthen the bear signal.
Interest rates are surging as the market anticipates rising inflation under a Trump presidency. 10-Year Treasury yields are testing resistance at 2.50. Breakout is likely and would signal a test of resistance at 3.0 percent. Penetration of 3.0 percent would warn that the 30-year secular down-trend in Treasury and bond yields is coming to an end.
The Dollar strengthened in response to rising interest rates, with the Dollar Index breaking resistance at 100 to signal a primary advance with a target of 107*.
* Target medium-term: 100 + ( 100 – 93 ) = 107
Gold breached primary support at $1200 in response, signaling a primary decline with a target of the December 2015 low of $1050/ounce.
In the long-term, higher inflation and a weakening Yuan could both fuel demand for gold as a store of value. But the medium-term outlook is bearish.
Long-term interest rates continue their decline, with 10-year Treasury yields testing support at 1.65 to 1.70 percent. Breach would signal a test of the all-time (July 2012) low of 1.40 percent.
Gold rallied in response, breaking initial resistance at $1250/ounce to signal a test of $1300.
The Chinese appear to have resumed selling foreign reserves to support the Yuan, with USDCNY running into resistance at 6.60. PBOC sale of reserves would weaken the Dollar, boosting demand for Gold. Failure to support the Yuan is unlikely, but would increase safe haven demand for Gold from Chinese investors.
The Dollar Index, representing predominantly the Euro and Yen crosses, fell sharply. Breach of support at 93 would confirm the primary down-trend earlier signaled by 13-week Momentum below zero.
The Australian All Ordinaries Gold Index broke through 4500 to signal another advance, with the weakening Australian Dollar adding further impetus. Gaps between trough lows (orange line) and preceding highs (brown line) indicate strong buying pressure.
Disclosure: Our Australian managed portfolios are invested in gold stocks.
Gold broke below its recent flag formation, warning of a test of support at $1200/ounce.
Selling is driven by expectations of a Fed interest rate hike in June …..and recent Chinese stimulus which postponed Yuan devaluation against the Dollar. But expectations of a rate hike are causing a sell-off of the Chinese Yuan, with the USDCNY strengthening over the last few weeks.
…Which in turn will cause the Chinese to sell foreign reserves to support the Dollar peg (…..else devalue which would panic investors and cause a downward spiral). Sale of Dollar reserves by China would drive the Dollar lower.
…and Gold higher. I remain bullish as long as support at $1200/ounce holds.
Disclosure: Our Australian managed portfolios are invested in gold stocks.
The consumer price index (CPI) ticked up 1.14% (year-on-year) for April 2016, on the back of higher oil prices. Core CPI (excluding energy and food) eased slightly to 2.15%.
Inflation is muted, but a sharp rise in hourly manufacturing (production and nonsupervisory employees) earnings growth (2.98% for 12 months to April 2016) points to further increases.
Despite this, long-term interest rates remain weak, with 10-year Treasury yields testing support at 1.65 percent. Breach would signal another test of the record low at 1.50% in 2012. The dovish Fed is a contributing factor, but so could safe-haven demand from investors wary of stocks….
The US Dollar Index rallied off long-term support at 93 but this looks more a pause in the primary down-trend (signaled by decline of 13-week Momentum below zero) than a reversal.
Explanation for the Dollar rally is evident on the chart of China’s foreign reserves: a pause in the sharp decline of the last 2 years. China has embarked on another massive stimulus program in an attempt to shock their economy out of its present slump.
But this hair of the dog remedy is unlikely to solve their problems, merely postpone the inevitable reckoning. The Yuan is once again weakening against the Dollar. Decline in China’s reserves — and the US Dollar as a consequence — is likely to continue.
Crude finds support at $30/barrel, iron ore rallies, the Dollar strengthens, long-term interest rates fall and all seems right with the world. But is it? Deflationary pressures in Europe are rising. China cut bank reserve requirements to stimulate lending. And long-term interest rates would be rising, not falling, if confidence is restored.
Nymex WTI Light Crude futures (June 2016) found support at $30 per barrel. Expect a test of $40/barrel. But the primary trend is down and respect of the descending trendline is likely, which would warn of another decline.
* Target calculation: 30 – ( 40 – 30 ) = 20
Long-term interest rates remain weak, with 10-year Treasury yields testing primary support at 1.5/1.65 percent. The flight from stocks is driving up Treasuries (and yields lower), overwhelming sales by China (to shore up the Yuan). Declining 13-week Twiggs Momentum warns of further weakness.
The Dollar Index rallied over the past two weeks but further PBOC selling is expected to reinforce resistance at 100. Reversal of 13-week Twiggs Momentum below zero would warn of a primary down-trend.
Gold has benefited from the uncertainty, with consolidation above $1200 suggesting another advance. Breakout above $1250 would offer a target of $1300*.
* Target calculation: 1200 + ( 1200 – 1100 ) = 1300
The monthly chart, however, reflects a more precarious position. Momentum has clearly shifted, with breach of the descending trendline and a sharp rise on the 13-week indicator. But there is no higher trough confirming the trend change. So pick your entry points carefully and maintain tight stops. This could still go either way.
China’s PBOC made its move against the hedge funds on Monday, while many hedge fund managers were enjoying a long weekend in the Hamptons. With more than $3 Trillion of foreign reserves, this is a fight that the PBOC is likely to win, provided it stands firm. Hedge funds betting on a collapse of the Yuan can leverage their positions, but that makes them vulnerable to margin calls. Driving the Yuan below 6.50 to the Dollar may force some to cover their shorts, which would further strengthen the beleaguered currency.
China’s sell-off of foreign reserves has caused the Dollar to fall, in the midst of a flight to safety. Retracement that respects resistance at 97.50/98.00 would indicate a decline to test primary support at 93.00. Decline of 13-week Twiggs Momentum below zero warns of a primary down-trend.
Flight to safety has spiked demand for Gold. Expect retracement to test support between $1150 and $1200/ounce. But respect of either level would confirm a trend reversal (after recovery above $1200 completes a higher trough).
China is betting that it can use its more than $3 Trillion of foreign reserves to stare down hedge funds betting on a collapse of the Yuan. Any sign of weakness in the Yuan would fuel further speculation and flight to safety. The caterpillar on the right of the daily chart reflects PBOC efforts to support the Yuan (prevent further appreciation of USDCNY).
But you need plenty of bikkies (chips) to stand firm against the market and China is depleting its foreign reserves to buy up Yuan. IMF figures to September last year show a substantial fall in foreign reserves (excluding gold) but the pace has accelerated and I suspect China must now be close to the $3 Trillion mark (from a high of $4.0T in June 2014).
China’s sell-off of foreign reserves has had an unusual impact: in the midst of a flight to safety, the Dollar is falling. Sell-off by the PBOC is driving the Dollar Index lower. Good news for US exporters (and manufacturers competing against imports) who would have been crucified by a rising Dollar.
Flight to safety not only led to a sell-off in the Yuan but has spiked demand for Gold. If you can’t get your capital out of China to buy real estate in Vancouver or Sydney then the next best alternative is to buy gold. Spot metal prices brushed aside expected long-term resistance at $1200/ounce, reaching highs of $1250. Expect some retracement, but gold should find support at $1200. Completion of a higher trough would confirm a primary trend reversal.
Dow Jones Global Index respected resistance at the former primary support level of 290. Breach of 270 would confirm another decline. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend.
* Target calculation: 290 – ( 320 – 290 ) = 260
Dow Jones Industrial Average is hammering primary support at 16000 but long tails on weekly candles (and rising 13-week Twiggs Money Flow) highlight committed buying. Expect another bear rally next week, but the weight of the market is on the sell side and is unlikely to change course. Breach of 16000 offers a target of 14000*.
* Target calculation: 16000 – ( 18000 – 16000 ) = 14000
The S&P 500 also rallied Friday and recovery above 1850 suggests another test of 1900/1950. Rising 21-day Twiggs Money Flow reflects medium-term buying pressure. Reversal of the primary trend is unlikely and breach of support at 1850 would confirm a decline to 1700*.
* Target calculation: 1900 – ( 2100 – 1900 ) = 1700
CBOE Volatility Index (VIX) continues to range between 20 and 30, reflecting elevated risk.
U.S. equity and options markets will be closed on Monday, February 15, 2016, in observance of Presidents’ Day.
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Canada’s TSX 60 also retraced to test resistance at 750. Respect is likely and breach of 700 would offer a target of 650*. Declining 13-week Twiggs Momentum peaks below zero indicate a strong primary down-trend.
* Target calculation: 700 – ( 750 – 700 ) = 650
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Dow Jones Europe index continues its primary down-trend. Breach of support at 260 would signal another decline. Declining 13-week Twiggs Momentum below zero confirms a strong down-trend.
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Germany’s DAX is testing primary support at 9500. Peaks below zero on 13-week Twiggs Momentum warn of a primary down-trend. Follow-through below 9300 would confirm.
* Target calculation: 9500 – ( 11500 – 9500 ) = 7500
The Footsie retreated below 6000, signaling a primary down-trend. 13-Week Twiggs Momentum peaks below zero further strengthen the signal. Long-term target for a decline is 5000*.
* Target calculation: 6000 – ( 7000 – 6000 ) = 5000
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Dow Jones Asia breached support at 2400 confirming another decline. Declining 13-week Twiggs Momentum below zero confirms a strong down-trend.
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Support has given way on the Shanghai Composite Index, strengthening the primary down-trend signaled last August when 13-week Twiggs Momentum crossed below zero. Target for the decline is 2400*.
* Target calculation: 3000 – ( 3600 – 3000 ) = 2400
Japan’s Nikkei 225 Index is testing primary support at 17000. Breach is likely and would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.
* Target calculation: 94 – ( 106 – 94 ) = 82
Two failed swings on India’s Sensex (failing to reach the upper trend channel) warn of increasing selling pressure. Declining 13-week Twiggs Momentum peaks below zero confirm this. Follow-through below 24000 would offer a target of 22500*.
* Target calculation: 25000 – ( 27500 – 25000 ) = 22500
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The ASX 200 broke support at 4900 this week, confirming a (primary) decline. There are still buyers hoping for a reversal — illustrated by bullish divergence on 21-day Twiggs Money Flow (indicates medium-term buying pressure) — but the weight of the bear market is against them. Expect a test of support at 4600 in the next few weeks but the long-term target is 4000*.
* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000
Banks are taking a hammering, breach of 75.00/76.00 signaling a decline to 66.00*. Now is not the time to go bargain-hunting. What looks cheap today may be even cheaper tomorrow.
* Target calculation: 7600 – ( 8600 – 7600 ) = 6600
The only sound reason for buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering.
~ Nicholas Darvas
Batten down the hatches, the storm is here.
Nymex WTI Light Crude futures (March 2016) are testing support at $30 per barrel. There is no indication that this is the bottom and breach of $30 would be likely to test $20 per barrel.
* Target calculation: 30 – ( 40 – 30 ) = 20
Long-term interest rates are falling, with 10-year Treasury yields headed for another test of primary support at 1.5 percent. Breach of 1.7 percent would confirm. The flight from stocks is driving up Treasuries (and yields lower).
Flight to safety is (normally) synonymous with a strong Dollar, so the weakening Dollar Index is a surprise.
China must be selling off Dollar reserves to support the Yuan and restore confidence.
Too late, I’m afraid. That horse has bolted. Loss of confidence in the Yuan is driving demand for gold, with the spot metal rallying to $1200 per ounce. Resistance at the former support level makes retracement likely, but a trough that respects $1100 or narrow consolidation below $1200 would suggest reversal (to an up-trend). Breach of $1200 would offer a target of $1300*.
* Target calculation: 1200 + ( 1200 – 1100 ) = 1300
After forming a lower peak at 18000, Dow Jones Industrial Average is testing primary support at 16000. 13-Week Twiggs Momentum peak at zero warns of a primary down-trend. Breach of support would offer a target of 14000*.
* Target calculation: 16000 – ( 18000 – 16000 ) = 14000
The S&P 500 displays a similar pattern, testing primary support at 1850, with a 13-week Twiggs Momentum peak at zero. Breach of support would offer a target of 1500*.
* Target calculation: 1850 – ( 2150 – 1850 ) = 1550
A monthly chart shows VIX rising for another test of 30. Oscillation between 20 and 30 flags elevated market risk.
Australia’s ASX 200 retreated below primary support at 5000, signaling a primary down-trend. A 13-week Twiggs peak below zero already warns of a decline. Today’s close at 4832 confirms, offering a short-term target of 4600* and a long-term target of 4000*.
* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000
Investors who plan to hold stocks through a possible down-turn should stop watching daily prices and listening to news reports. It will only weaken your resolve. I am comfortable with holding stocks with strong dividend streams, but wary of holding growth stocks as they normally suffer the biggest losses.
For traders this is a time of dangerous opportunity. Either shorting sectors likely to be worst hit or waiting for opportunities to buy gold stocks.
Only when the tide goes out do you discover who’s been swimming naked.
~ Warren Buffett
