Brent crude respected its declining trendline and is likely to re-test support at $104. Failure would warn of a correction to the long-term, rising trendline at 95*.
* Target calculation: 105 – ( 115 – 105 ) = 95
HongKong sell-off accelerates
Dow Jones HongKong Index reversed below 400, warning of another down-swing. The secondary trendline and declining 63-day Momentum indicate that the sell-off is accelerating.
* Target calculation: 400 – ( 450 – 400 ) = 350
Weekly chart of the Shanghai Composite Index shows a primary down-swing to test support at 2300*. Reversal of 13-week Twiggs Money Flow below zero would warn of rising selling pressure. Failure of support would test the 2008 low of 1700.
* Target calculation: 2650 – ( 3000 – 2650 ) = 2300
The sell-off in Asian markets will impact on others with a strong mining sector: Australia, Brazil, South Africa and Canada.
Gold finds support
A false break below $1800/ounce indicates buying support at the rising trendline. Breakout above $1900 would complete an ascending triangle with a target of $2100*. Reversal below Friday’s low would warn that the pattern has failed and correction to the long-term trendline (around $1500) is likely.
* Target calculation: 1900 + ( 1900 – 1700 ) = 2100
The long-term chart below gives a clearer picture of the current bull-trend. Spot prices spiked up 20% in a matter of days after the collapse of Lehman (LEH), but declined back to $700/ounce within a few weeks. The up-trend only started in November 2008, when the Fed announced that it would purchase mortgage-backed securities and Treasurys in an attempt to lower long-term interest rates (QE). The trend accelerated in 2011, several months after commencement of QE2. While collapse of Lehman was the underlying cause, the bull-trend is a reaction to the Fed response of quantitative easing. Further purchases of Treasurys or MBS would lift demand for gold. Hopefully Wednesday’s FOMC announcement will provide more clarity as to the Fed’s intentions.
Crude rising
The Brent Crude rally since mid-August is now testing the descending trendline at $115/barrel. Breakout above this level would warn that the down-trend is ending. Recovery above $120 would signal a fresh primary advance. Rising crude prices are a negative sign for economic recovery, placing a further damper on consumer spending. Reversal below support at $105, however would signal a decline to $90*.
* Target calculation: 105 – ( 120 – 105 ) = 90
JSE Overall Index retreats
The JSE Overall Index retreated below the former primary support level of 30000, strong volume [R] warning of selling pressure. Breach of the rising trendline would indicate another test of support at 28400. Failure of support would offer a target of 26000*, but this is not yet a foregone conclusion, with an up-tick in volume [S] indicating some buying support.
* Target calculation: 28.5 – ( 31 – 28.5 ) = 26
Bovespa
The Brazilian Bovespa Index encountered strong resistance at 58000, the spike in volume [R] warning of selling pressure. Breach of the rising trendline would warn that the rally is fading and another test of support at 48000 is likely. Failure of support would offer a target of 38000*.
* Target calculation: 48 – ( 58 – 48 ) = 38
Euro tests primary support at $1.40
The euro broke its medium-term trendline against the dollar at [TX] and is headed for another test of primary support at $1.40. Failure of support would offer a target of $1.30*.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
Euro checks support
The euro is headed for another test of support at $1.40 after respecting resistance at $1.45. The descending triangle suggests a downward breakout with a target of $1.30. Momentum crossing below zero would strengthen the signal.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
The pound sterling is also headed for a test of support, this time at $1.60. Breach of the rising trendline warns of trend weakness; a Momentum cross below zero would again strengthen the signal. Failure of support would offer a target of $1.53*.
* Target calculation: 1.60 – ( 1.67 – 1.60 ) = 1.53
Gold miners threaten breakout
The Gold Bugs Index, representing unhedged gold miners, threatens to break through resistance at 600 which would signal an advance to 700*. Upward breakout would negate the earlier bear signal from penetration of the rising trendline — as well as strengthening prospects of a further advance in the spot price.
* Target calculation: 600 + ( 600 – 500 ) = 700
Spot gold has so far respected the secondary trendline and support at $1750. Short retracement from resistance at $1850 would be a bullish sign, suggesting an upward breakout. Recovery above $1900 would test $2000, though the calculated target is even higher*.
* Target calculation: 1900 + ( 1900 – 1750 ) = 2050
Upside potential for gold remains strong. Treasury and the Fed are running out of options to revive the economy and further quantitative easing grows ever more inviting despite the inflationary outcome. With presidential elections looming in 2012, the White House will also be doing their best to influence the Fed decision.
Rand weakens
A three-year chart shows strong support for the US dollar at R6.50. Earlier breach of the descending trendline and rising 63-day Twiggs Momentum both warn that the Rand is likely to weaken. Now we have a break above resistance at R7.00 testing the 2011 high of R7.35. Breakout would signal an advance to R8.00*.
* Target calculation: 7.30 + ( 7.30 – 6.50 ) = 8.10