Add the US dollar to the list of items that are in question and on the move. The green circles show the higher highs and higher lows made by USD since the May low. In June it spiked down, tested that low and then shot higher.
Most recently we noted that the modest new high was enough to keep the uptrend going and that USD can correct, even all the way down to key support in the most extreme case, and still keep a bullish case going. In making a lower low to July, it is in danger of losing initial support but is clinging to the MA 50. The two most recent peaks would in that case be a double top of short-term significance only. Whether or not Uncle Buck holds support right here is very key to other markets and their bounce/rally potentials.
Nothing has changed with the S&P 500. It made a spike down yesterday on China and associated hysterics, but remains in the nose of a Triangle, pinched between the MA’s 50 and 200. This market is going to break one way or the other within a week or so.
If the break is up, it will have come amidst jangled nerves and a firming view that the market is bearish. That is the most bullish thing I can say about it right now. If the break is down, it will have been one of the most widely observed topping processes I can recall. That is because nearly everyone seems to see the fading momentum, the loss of leadership, the rolling price and of course the hysterics in the headlines. The chart is unattractive, but the price has not broken down.
We had the ‘bounce’ potential in gold to resistance beginning at 1140. If this is just a bounce, it is maturing rapidly.
We had the ‘bounce’ potential in silver to 15.50. Boink. This is an area of significant resistance in silver.
But depending on what the USD does, I want to show a higher potential target for the ‘bounce’ using a weekly chart. There is not much to like about this chart technically, but it does show that the last two bounces were contained by the 55 week EMA. So we can keep this on radar in the event the dollar takes a harder correction. The main reason, aside from USD, that I am even considering this option is because of the sentiment washout and bullish CoT alignments that happened in the precious metals sector.
For HUI, the equivalent weekly EMA is currently at 174 and dropping. Lateral resistance comes into play first at the gap (around 130) and then at 140 to 150.
The gold sector has nicely improved fundamentals, but it is not until the ducks all line up on the macro funda’s that we are going to call this something more than a bounce. The bounce can be mini (as is already in the books or it can be MAXI, to HUI 150 or even the EMA 55. But the main goal for me is still to one day manage a new bull market, slow down the trading and ride.
Euro 50 failed at the equivalent of the resistance we noted on HEDJ last weekend. Boy, did it fail. So again, this is another market that is dependent upon what goes on with the USD, and by extension, the Euro. I thought the pattern had looked bullish, but the sharp lower low puts that in question. If Euro continues to bounce Europe stocks are ‘hands’ off.
Something similar happened to the Yen hedged DXJ as the Yen firmed.
China 25 is hanging around at crash support. I am keeping China on radar longer-term because I am not convinced it is going to be as bearish as the media portray.
Canada’s TSX is in an orderly downtrend, but today let’s look at the really sad end of the Canadian market, the TSX-V. There is a crash-induced over sold RSI and MACD triggered up. Again, what is USD going to do in the near-term? Markets like this probably depend on the answer with respect to their abilities to bounce.
Broad commodities have still not moved.
In part because crude oil has still not moved. But if USD weakens, this over sold thing can get a big bounce. I am considering a long in either oil or energy stocks, depending on USD’s struggle at the MA 50.
Copper as well is bearish but can bounce. Our ultimate target is and has been 1.50, but nothing gets where it is going in a straight line.
Final Notes & Bottom Line
The market phase of the last few years has had its roots in competitive global currency devaluation. Now China has made a splash in the headlines and people are talking ‘currency war’ again.
Capital is in motion and flying all over the planet trying to keep up and invest itself accordingly. It really does sound silly and it sounds like a grand casino. Hey, you figure out the complex implications of each policy (and by extension, currency) move, have your capital deployed correctly and you win!
Confusion is king. This remains a trading atmosphere and a risk management atmosphere. The US market is going to break up or break down soon. The US seems more cut and dry than most. What I will plan to do is try to trade ETF’s more than stocks, based on directional instructions upcoming.
Right now in that regard, the SPY short position is the lone holding. That is because technically the market is weak and because the cycles guys have this general period as a topping window. But if the less expected move, upward, is the play then so be it.
The gold sector is also cut and dry. I like that gold is out performing other commodities. I don’t like that it is still in a down trend vs. major stock markets and I don’t like the state of yield spreads. We could be in the process of change in these indicators, but right now we are in (maturing) ‘bounce’ mode and not reading more into it.
If USD resumes weakening implications could be an ‘avoid’ on Europe and a trade on commodities.