After The FOMC – What’s Next?

I have received numerous emails and questions regarding the market’s set up and what to expect after the Triple-Witching event (FOMC, Futures/Options expiration) last week.  It appears many traders/investors are seeking some clarity related to price trends and the potential opportunities that are setting up in the US markets right now.  In this research article, my research team and I provide some greater detail related to what we believe is likely to happen over the next 5 to 8+ weeks.

Our recent Gann/Fibonacci research article drew quite a bit of attention from readers.  Their biggest concern was that we were suggesting a major peak in the markets could setup in early April 2021.  We want to be clear about this longer term market setup to make sure our readers and followers fully understand the implications of this technical pattern.

A peak/top could start to setup anytime after April 1, 2021, based on the Gann/Fibonacci research we’ve completed.  But, that peak/top setup could also happen anytime between April 2021 and August 2021 (or slightly later).  Timing this pattern is not something we can accomplish very easily as the range of dates where this Gann/Fibonacci inflection level exists consists of about 5+ months.  The one key factor we continued to stress in that article was to “watch for a technical breakdown in price above the $379 to $380 price level on the SPY”.  Many readers may be able to comprehend what we are trying to say by this statement, but we’ll try to help clarify it by showing what it would look like on a price chart.

Back in November 2020, we published a research article about how to spot an Excess Phase Top and the 5 unique phases that take place when this type of top executes.  It is important to understand how capital continues to seek out opportunities within any market trend and how the current shift away from the NASDAQ and into the Dow Jones, Russell 2000 and other various sectors has started to shift the way the markets are reacting right now.  We are seeing more weakness in the Technology and Internet sector now than we’ve seen in almost a decade.  This could be setting up the first technical patterns of an Excess Phase Top already.

Monthly NQ Chart Shows Excess Phase Top May Already Have Started

The following Monthly NASDAQ chart highlights the five unique stages of an Excess Phase Peak and shows the recent weakness in the NASDAQ price trend may have already started the Phase B (Price Flagging) stage.  Within this phase, price trends moderately higher for many weeks as weakness in the bullish price trend sets up a “rollover” type of peak.  Obviously, the previous excess phase rally is stalling and traders are not yet fully aware of the risks that may continue to be present if this pattern persists.  This Phase C (Breakdown of the Flagging pattern) would prompt a move to intermediate support, which will likely become the Critical support level in the NQ that may prompt the bigger Breakdown event(See the “D” setup).

So, what would price activity look like if our research is correct?  How does this translate into opportunity for traders/investors right now and what should they look for in the future?

Expect Many Weeks of Flagging In The NQ

Let’s focus on the Weekly NQ Futures chart, below, and how the price has already set up into a potential sideways Bullish Flagging trend.  The first thing we want you to focus on is the broken YELLOW bullish trend line.  We would expect any continued sideways Flagging trend to trade within the CYAN price channels we’ve drawn on this chart.  If this happens, we should continue to expect some moderate upside price trending throughout the sideways Flagging price channel before a bigger breakdown in price happens (as we’ve drawn in MAGENTA).  This is why traders and investors need to fully understand the scope of our Gann/Fibonacci research article and to understand this setup may last into July/August of 2021 before finally entering a deeper downside price trend.

If our research is correct, the sideways Flagging trend will prompt a moderate upside price trend for many weeks (possibly 4 to 8+) before a moderate breakdown event will see price levels fall -12% to -16% – targeting #D (the critical support level).  At that point, the trend may firm up near support and begin a moderate upside price trend for many weeks or months; or we may see a technical price bounce near this level before a more immediate breakdown of price takes place.  Either way, the Breakdown Zone is where we would consider a “technical price failure” to have confirmed – validating our Gann/Fibonacci peak prediction.

Currently, numerous sectors are generating new bullish trend triggers – many of which have already rallied 20 to 40% or more.  As we suggested earlier, the shift in how capital is being deployed in the markets has prompted various sectors,many of which have been overlooked over the past 12+ months,  to really begin to accelerate higher.  This is because the froth near the peak in the NASDAQ, as well as the new geopolitical landscape, has prompted traders/investors to shift focus into new opportunities in sectors they believe have continued growth opportunities.  For example, the Marijuana, Consumer Discretionary, Infrastructure and Real Estate sectors appear to be entering new bullish trends while the Technology, Healthcare, BioTech and Chip Manufacturers appear to be stalling.

What this means for traders/investors is that there is still lots of opportunity to trade the best opportunities in the markets.  This is the focus of my BAN trading Strategy.  Until we see a confirmed technical breakdown in the major markets, various sectors continue to present very strong opportunities for skilled technical traders.Don’t miss the opportunities to profit from the broad market sector rotations we expect this year, which will be an incredible year for traders of my Best Asset Now (BAN) strategy.

Learning to profit from these bigger trends and sector rotation will make a big difference between success and failure.  We want to be clear, we are not calling for an April 1 peak in the markets based on our Gann/Fibonacci research.  We are suggesting that a bigger “topping” pattern is already setting up in the markets and skilled technical traders should already be preparing for underlying risks related to this technical pattern.  If you are not prepared for this, then please pay attention and learn from our research. You can sign up now for my FREE webinar that teaches you how to find, enter, and profit from only those sectors that have the most strength and momentum. Staying ahead of sector trends is going to be key to success in volatile markets.

In Part II of this research article, we’ll attempt to share more information about the Excess Phase Peak setup that may be setting up in the US markets and what to watch out for.  Additionally, we’ll take a look at the Dow Jones Industrial chart to compare the NASDAQ setup to the INDU setup.  Where we are seeing weakness in the NASDAQ right now, the Dow Jones Industrial chart appears to show a much stronger price trend right now.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

February’s US Employment Situation Report in Focus

Reading time: 15 minutes

Due to its timeliness, accuracy and importance within the broader economy, the employment situation report—often referred to as the non-farm payrolls release—is a closely monitored indicator.

As well as a leading indicator of consumer spending, non-farm payrolls represent a measure of new payrolls added by private and government organisations across the United States (US), reported each month by the Bureau of Labour Statistics (BLS)[1].

Two comprehensive reports are used to cover the unemployment rate (the household survey) and the headline non-farm payrolls (the establishment survey). In most cases, the non-farm payrolls release attracts the majority of the attention, often vibrating through financial markets. A positive number reveals additional jobs were added to the economy, while a negative number, displayed as -100k or -90k, means jobs were lost in non-farm business.

January’s total non-farm payroll employment added 49,000 jobs—a lower-than-forecast print of 85,000, though better than December’s downwardly revised -227,000 reading.

According to the BLS[2], job gains were noted in professional and business services along with both public and private education. However, this was counterbalanced by declines seen in leisure and hospitality, retail trade, health care, as well as transportation and warehousing.

The general consensus range for February’s US non-farm payrolls is for an increase between 185,000 and 200,000.

(Source: Reuters)

Unemployment Rate

The unemployment rate is a closely followed economic indicator, derived from a monthly survey called the Current Population Survey (CPS), made up of approximately 60,000 households[3].

The Household Survey, derived from the BLS report, revealed the unemployment rate dipped 0.4 percentage points to 6.3 percent in January (consensus forecast: 6.7%).

This means the number of unemployed decreased to 10.1 million, but despite the report noting its ninth consecutive decline, following April 2020 highs, the unemployment rate remains well above pre-pandemic levels in February 2020 (3.5 percent and 5.7 million, respectively).

The BLS’s Household Survey added that unemployment rates for adult men and women came in at 6.0 percent (previous: 6.4 percent [men] 6.3 percent [women]). Teenagers, between 16 and 20 years old, registered 14.8 percent—lower than December’s 16.0 percent reading.

The survey also noted the following points:

  • In January, the share of employed persons who teleworked because of the coronavirus pandemic edged down to 23.2 percent. These data refer to employed persons who teleworked or worked at home for pay at some point in the last 4 weeks specifically because of the pandemic.
  • In January, 14.8 million persons reported that they had been unable to work because their employer closed or lost business due to the pandemic–that is, they did not work at all or worked fewer hours at some point in the last 4 weeks due to the pandemic. This measure is 1.1 million lower than in December.

February’s unemployment reading is forecasted to remain unchanged at 6.3 percent.

(Source: Reuters)

Average Hourly Earnings

Calculated by the BLS (establishment survey data), average hourly earnings measure the amount employees make each hour in the US. Average hourly earnings for US non-farm employees is a leading indicator of consumer inflation and also the earliest data in terms of labour inflation.

Average hourly earnings increased to $29.96 in January, a rise of 6 cents from December’s $29.90 read.

Average workweeks for non-farm employees increased to 35 hours in January, from December’s 34.7 hour print. Notably, the workweek in manufacturing increase by 0.3 hours to 40.4 hours.

The consensus estimate for February’s average hourly earnings is anticipated to remain unchanged at 0.2 percent.

(Source: Reuters)

ADP Non-Farm Employment Change

Published by the ADP Research Institute, in association with Moody’s Analytics, the ADP non-farm employment release estimates the number of employed during the prior month, excluding farming and government. The headline figure is derived from ADP’s payroll database, covering one-fifth of US private payroll employment. ADP is considered an early snapshot, a preview, of the upcoming BLS report. The report covers three main categories: the national snapshot (the headline release), small businesses and franchise employment.

Private sector employment, according to the ADP National Employment Report[4] released on Wednesday, increased by 117,000 in February.

By company size, medium-sized business of 50–499 employees witnessed the largest increase at 57,000. By sector, the service-providing industry added 131,000 jobs, with trade/transportation and utilities adding 48,000 new payrolls.

The labour market continues to post a sluggish recovery across the board’, said Nela Richardson, chief economist, ADP. ‘We’re seeing large-sized companies increasingly feeling the effects of COVID-19, while job growth in the goods producing sector pauses. With the pandemic still in the driver’s seat, the service sector remains well below its pre-pandemic levels; however, this sector is one that will likely benefit the most over time with reopenings and increased consumer confidence’.

(Source: Reuters)

ISM Manufacturing PMI

Data are based on surveys of purchasing managers nationwide. Survey respondents are asked if they are experiencing a higher, lower or no change in activity for each of the 10 components, including New Orders and Employment.

The release, which provides timely information on manufacturing, offers investors and traders a window into business activity, in addition to some insight into what the non-farm payrolls release might be.

Headline manufacturing data, according to the Institute of Supply Management (ISM)[5], recorded a nine-month expansion in February, following March, April and May’s contraction. The manufacturing PMI recorded 60.8 percent, increasing by 2.1 percentage points from January’s print of 58.7 percent. A headline number above 50 is consistent with both manufacturing and economic expansion.

The Manufacturing PMI continued to indicate strong sector expansion and US economic growth in February. Four of the five subindexes that directly factor into the PMI were in growth territory and at a higher level compared to January’, says Timothy R. Fiore, Chair of the Institute for Supply Management.

(Source: Reuters)

  • New Orders Index recorded 64.8 percent in February, indicating a ninth consecutive month of growth.

(Source: Reuters)

  • Employment Index registered 54.4 percent in February, increasing for a third consecutive month.

For the sixth straight month, survey panellists’ comments indicate that significantly more companies are hiring or attempting to hire than those reducing labour forces’ said Fiore.

ISM also noted:

An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labour Statistics (BLS) data on manufacturing employment.

Of the 18 manufacturing industries, 11 industries reported employment growth in February.

(Source: Reuters)

Interestingly, all but the Inventories and Customers’ Inventories Indexes remained in expansionary territory in February. Overall, the manufacturing sector continues to grow, pencilling in a ninth consecutive month of growth.

Figures above the 50 percent mark suggests expansion in manufacturing; under 50 percent indicates a contractionary phase.

Consumer Confidence

Each month the Conference Board surveys a nationwide sample of 5,000 households, consisting of a questionnaire. The report gauges individual (household) confidence levels concerning the performance of the economy.

According to the Conference Board[6]:

  • February’s consumer confidence registered 91.3, advancing from 88.9 in the month of January (consensus forecast: 90.2).
  • The Present Situation Index recorded 92.0 in February from an 85.5 reading in January.
  • The Expectations Index fell to 90.8 in February from January’s 91.2 print.

After three months of consecutive declines in the Present Situation Index, consumers’ assessment of current conditions improved in February’, said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. ‘This course reversal suggests economic growth has not slowed further. While the Expectations Index fell marginally in February, consumers remain cautiously optimistic, on the whole, about the outlook for the coming months’.

Overall, we have been forming a consolidation (a potential bottom) around (85.70) since April 2020 (COVID-induced lows).

An uptrend in the index is generally viewed as positive for the economy and can bode well for the upcoming non-farm payrolls release, while a sustained downtrend is typically interpreted as bearish.

(Source: Reuters)

Initial Jobless Claims

Measured by the Department of Labour[7], unemployment claims represent the sum of first-time claims for state unemployment insurance. Because data are released weekly, this is a widely watched indicator.

Initial first-time unemployment claims inched higher last week. The Labour Department, for the week ending February 27, noted the advance figure for seasonally adjusted initial claims was 745,000, an increase of 9,000 from the previous week’s 736,000 revised level (consensus: 758,000). As you can see from the chart, initial claims have levelled off since August 2020, with claims capped under the 890,000 mark.

The DOL also noted:

The previous week’s level was revised up by 6,000 from 730,000 to 736,000. The 4-week moving average was 790,750, a decrease of 16,750 from the previous week’s revised average. The previous week’s average was revised down by 250 from 807,750 to 807,500.

(Source: Reuters)

Continuing claims declined, falling 124,000 to under 4.3 million—a pandemic-low. Continuing claims are those filing for unemployment benefits again following an initial claim.

(Source: Reuters)

FP Markets Technical View

Monthly timeframe:

Despite economic indicators pointing to somewhat healthier employment, the US dollar’s technical picture, as measured by the US dollar index, remains bearish.

Kicking off from the top, monthly price structure dethroned a long-term trendline support (72.83) in December (2020) and in February retested the underside of the ascending base. To the downside, technicians likely have support at 88.65 on the radar. Further downstream, however, notable support resides around 83.22, joined by a number of Fib levels (Fib cluster).

Depending on the structural view one takes regarding swing points, the broader outlook (black arrows) shows a major downtrend in play. Price topped around the 103.00 level (between 2017 and 2020), following a deep pullback from 2008. Continuation lower, according to the trend, therefore, is potentially on the table over the coming months/years.

(Source: Trading View—US dollar index monthly chart)

Daily timeframe:

The technical landscape on the daily scale reveals the US dollar has been firm, following the mid-week trough at 90.63.

In conjunction with the monthly timeframe’s trendline support-turned resistance, the daily timeframe is currently shaking hands with an interesting point of resistance drawn from 92.29 and 91.95 (made up of a 127.2% Fib projection at 92.29, a 100% Fib extension at 92.15, a 50.00% retracement at 91.95 and a resistance level fixed at 92.11).

Additional points of note on this timeframe are the trend, launching a series of lower lows and highs since topping in early March 2020, and the 200-day simple moving average hovering just above the 92.29/91.95 resistance zone. In addition, the RSI indicator trades within striking distance of the overbought range.

(Source: Trading View—US dollar index daily chart)

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives carry a high level of risk; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.

  1. https://www.bls.gov/home.htm
  2. https://www.bls.gov/news.release/empsit.nr0.htm
  3. https://www.bls.gov/cps/cps_htgm.htm
  4. https://adpemploymentreport.com/2021/February/NER/docs/ADP-NATIONAL-EMPLOYMENT-REPORT-February2021-Final-Press-Release.pdf
  5. https://www.ismworld.org/supply-management-news-and-reports/reports/ism-report-on-business/pmi/february/
  6. https://www.conference-board.org/data/consumerconfidence.cfm
  7. https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20210376.pdf

Gold Predictive Modeling Suggests A New Rally Targeting $2300+

One of our readers’ favorite tools is the Adaptive Dynamic Learning (ADL) predictive modeling system.  This tool maps out technical and price patterns into an array of similar setups using historical data, then applies that data to current and future price bars.  Using the ADL predictive Modeling tool, we can see into the future based on historical technical analysis that maps statistically relevant price activity and shows us the highest probability outcomes.

Monthly ADL Gold Predictions

In this research article, we’re going to focus on Gold and how current price action suggests a bottom is likely near the $1720 level.  The YELLOW price channels on this Monthly Gold chart highlight exactly where we believe support is located for Gold.  If this $1700 price level is breached to the downside, then the previous lows, near $1400, are the next support level for Gold.

Our ADL predictive modeling system suggests the $1720 support level will hold, prompting a new rally to levels above $2200 within 30 to 60+ days.  The ADL system predicts an aggressive move in Gold near May or June 2021.  The move higher may happen earlier than the ADL Monthly predictions indicate.  There is a chance that a move back above $1850 starts the move higher before the end of March or April 2021 – propelling Gold toward the $2300+ peak.  The actual peak level predicted by the ADL predictive modeling system is $2315.

2-Week ADL Predicts Gold May Start To Rally near Mid-March

This 2-Week Gold Chart highlights a similar ADL price prediction.  What we find interesting about this ADL outcome is the similar price predictions originating from vastly different origination points.  The Monthly ADL prediction originates from a date of August 1, 2020 – the peak price bar.  This 2-Week ADL prediction originates from a date of November 23, 2020 – the intermediate low DOJI bar before the recent continue downward trend targeting the YELLOW price channel.

The similarities between these two unique ADL predictions suggest that Gold may attempt to find support fairly quickly near the $1700 to $1720 level, then attempt to move above $1795~1825 as an early stage rebound off the lower YELLOW price channel.  The 2-Week ADL price prediction suggests that Gold will quickly attempt to move higher, before or near March 20th, targeting levels above $1900.  Then, as you can see from the YELLOW DASH LINES on this chart, Gold will attempt to move moderately higher over the next 2 to 3+ months targeting levels above $2030.

If these ADL price predictions are accurate and Gold does find a solid bottom near $1700, then we would want to watch for an upward price trend to start to setup near March 15th or so, attempting to push Gold prices above $1850 to $1900.  If that happens, then the next phase of the ADL price predictions would become even more relevant.  That means the upward price trend would attempt to target the $2050 level, then the $2300 level before June or July 2021.

Our ADL predictive modeling system accurately called the rally in gold in 2019 and has delivered some incredible predictive analysis over the past few months.  You can read some of our earlier ADL predictions here:

Miner ETFs May See Big Gains

In terms of sector ETF trends, a stronger upside move in Gold would likely prompt Miner ETFs to also move dramatically higher over the next 30 to 60+ days.  This GDXJ Weekly chart highlights a Fibonacci 100% measured move higher which suggests the $73.91 and $91.71 levels could become our next upside targets.

Additionally, one has to consider the process that would likely prompt Gold to move higher throughout this span of time.  A continued commodity rally could prompt some of this move to happen, but fear would also have to be factored into this move if Gold were to rally above $2300 as the ADL system predicts.  Any renewed fear would likely come from global financial or credit market concerns or be related to hyper-inflation concerns.  We’ll have to see how things progress throughout the rest of 2021 to really get a better feel for what may be driving this upward price trend.

We suggest traders pay very close attention to what happens in Gold over the next 2 to 4+ weeks.  If our ADL predictions are accurate, we could see some really big moves in the global markets, various sectors and metals/miners very quickly.

For those who believe in the power of trading on relative strength, market cycles, and momentum but don’t have the time to do the research every day then my BAN Trader Pro newsletter service does all the work for you with daily market reports, research, and trade alerts. More frequent or experienced traders have been killing it trading options, ETFs, and stocks using my BAN Hotlist ranking the hottest ETFs, which is updated daily for my premium subscribers.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Should You Buy Gold Soon?

Gold reached an all-time high (ATH) of $2089 on August 7 last year and has since been in an ugly downtrend, losing almost 15% of its value. See Figure 1 below. Meanwhile, I have helped navigate my Premium Members through this uncertain period, using the Elliott Wave Principle (EWP) and Technical Analyses (TA).

Figure 1. GOLD daily chart with detailed EWP count and technical indicators.

The Elliott Wave Principle points to a bounce followed by the next move lower.

GOLD is per the EWP in a double zig-zag Primary-IV correction (see here for an explanation): black (major) waves a, b, c. Each of these waves consists of three waves (aka. fractals): red (intermediate) waves a, b, c. Gold is, IMHO, now in the last leg lower: major wave-c, which should ideally target between $1620-1680. Note that the red, intermediate, current wave-a is equal in time and price to the red, intermediate wave-a that completed September last year at this week’s low: dotted black and red down arrows, respectively. Perfect time-price symmetry. Thus, if the double zig-zag analogy holds, we should now see a -complicated- red b-wave bounce similar to the September->October 2020 move before the last red wave-c of black wave-c (orange arrows).

I anticipate this bounce to last several weeks and target the declining 200-day Simple Moving Average (200d SMA), now at $1860, but it should be at around $1820 horizontal resistance by then. Note that price is below its declining 20d SMA, which in turn is below its declining 50d SMA, and which is subsequently below the 200d SMA. That is a 100% Bear market setup. I must, therefore, treat every rally as a counter-trend bounce, aka Bear market rally, until the charts have improved enough, i.e., price>20d>50d>200d SMA to tell us the anticipated next rally (Primary V) is underway.

Namely, the bigger picture EWP count -see Figure 2 below- anticipates wave-c to target around $1675 as well (red arrow), from which the blue Primary-V of (purple) Cycle-C should rally to the $2200-2400 target zone.

Figure 2. GOLD monthly chart with detailed EWP count and technical indicators.

Bottom line: shorter-term, I am looking for a somewhat tricky, whipsawing, move higher, ideally to around $1820+/-40. From there, I expect several weeks of downside back to $1620-1680. After that, I anticipated the next Primary-V rally to ~$2300+/-100. However, a weekly close below $1605 targets $1495 and strongly suggests a Primary-V wave may not happen as the decline is almost too deep for a wave-IV, and the odds are not in favor of it anymore. Hence, at current price levels, the risk/reward for GOLD on the long side is IMHO 120/600 = 1 to 5. Quite good, if I may say so, but for now, I prefer to wait things out until confirmation of a new uptrend. Trade safe!

For a look at all of today’s economic events, check out our economic calendar.

Gold Forecast – Expecting a Bottom in Gold this Week

Gold is below the November low, and our Gold Cycle Indicator reached its maximum bullish reading of ZERO (0). The conditions are ripe for a bottom, in our opinion.

The uptrends in silver and platinum remain strong, and prices continue to lead gold. I see the potential for a breakout and sharp advance over the coming weeks in both these metals.

Several gold miners are back to pre-Covid price levels. I view this as an excellent long-term opportunity and believe we will look back at today’s prices as a gift.

The Gold Cycle Indicator finished the week at ZERO (0), our maximum bullish reading.

 

GOLD MONTHLY: Gold is within striking distance of the 20-Month moving average ($1697) after confirming a Bull Market Breakout in 2019. When gold is in a bull market, buying a tag of the 20-month MA is usually a good long-term opportunity. I believe this time is no different.

Chart, histogram Description automatically generated

GOLD DAILY: This week I’ll be on the lookout for signs of a bottom in gold if/when prices reach the lower intermediate trend channel (currently crossing $1685) or near the post-Covid congestion boundary encompassing $1675. Essentially, I’m looking for a bottom this week between $1665 and $1685. A temporary spike below support remains possible.

 

SILVER FORECAST: After lagging gold for years, silver is finally leading prices higher. I’ve been expecting this, and it is a very bullish sign, in my opinion.

Near-Term Outlook – Silver is consolidating in what I believe is a rounded continuation pattern. Prices could dip down towards $24.00 to maintain pattern symmetry. Ultimately, I expect a breakout above $30.00. It would take a sustained breakdown below $22.00 (the rounded bottom low) to invalidate the pattern and promote a more extended consolidation period.

GDX BREAKOUT BACKTEST: Gold miners broke out from a 7-year base in 2020. Prices are backtesting that breakout area now, and I believe we could be approaching a critical low.

Note- If I’m correct and precious metals have started a new multi-year bull market, then this might be the last time we see GDX near $30.00 for a very long time.

 

The time to be greedy is when others are fearful; I think we are almost there in gold.

I’ll be looking for leading price action from silver and platinum to signal a bottom and the next rally.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: A Month in Review – February 2021

The Majors

It was bullish month for the European majors in February, reversing January’s COVID-19 driven losses. The upside came in spite of a bearish final week of the month.

The CAC40 rallied by 5.63%, with the DAX30 and EuroStoxx600 ending the month with gains of 2.63% and 2.31% respectively.

In the final week of the month, market concerns over reinflation and impact on central bank monetary policy pared some of the gains, however.

Better than expected economic data from the Eurozone and the U.S and optimism towards the economic recovery delivered support.

Corporate earnings also delivered support in the month.

The Stats

It was a busy month on the Eurozone economic calendar and an important one. The stats revealed that the impact of 2nd lockdown measures was less severe than from the first time around.

Key takes away from the economic calendar included a marked pickup in manufacturing sector activity in February.

The French manufacturing PMI and Germany’s manufacturing PMI both jumped to 3-year highs, driving the Eurozone manufacturing PMI to a 3-year high.

Service sector activity continued to struggle, however, with the pace of contraction picking up as a result of extended lockdown measures.

The Eurozone’s services PMI fell to a 3-month low 44.7 in February, according to prelim figures.

Other stats of significance included German ifo and GfK business and consumer sentiment figures, both of which were market positive.

2nd estimate GDP numbers for the 4th quarter were mixed, however. While Germany and the Eurozone saw upward revisions, France saw a downward revision.

The devil was in the details, with the numbers revealing that domestic consumption will need to see a marked pickup to support an economic recovery.

Of concern for the markets, however, was a pickup in inflationary pressures, leading to a late pullback in the European majors.

For the Eurozone, the annual core rate of inflation accelerated from 0.2% to 1.4% in January.

From the U.S

Economic data delivered mixed results once more.

Retail sales bounced back in January, with service sector activity also picking up in January, according to the all-important ISM survey-based figures.

Consumer confidence numbers were mixed, however. While the market’s preferred CB survey showed a pickup in confidence, Michigan survey-based figures showed sentiment waning in February.

Also negative was slower growth in the manufacturing sector.

Labor market numbers also delivered mixed results. While initial jobless claims fell to a February low 730k, NFP numbers for January disappointed.

Following a 227k slide in December, nonfarm payrolls increased by just 49k in January.

While the numbers were mixed, progress towards a U.S stimulus package and continued support from the FED fueled optimism for what lies ahead.

Progress on the COVID-19 vaccine front was also positive for riskier assets. It ultimately culminated, however, in jitters over reinflation and a possible need for central banks to shift position on monetary policy.

Monetary Policy

The ECB and the FED stood pat on monetary policy once more. Significantly, FED Chair Powell looked to assure the markets of continued monetary policy support by ruling out any tapering.

Late in the month Powell also testified on Capitol Hill, again reassuring the markets that the FED would stand pat for the foreseeable future.

The markets were not convinced, however. ECB President Lagarde faced similar pressure to comfort the markets over rising bond yields early in the week. Again, the markets ultimately brushed aside the assurances of unwavering support.

The Market Movers

For the DAX: It was a bullish month for the auto sector in February. Volkswagen and Daimler rallied by 10.19% and by 14.19% respectively to lead the way. BMW and Continental saw relatively modest gains of 2.14% and 2.81% respectively.

It was a mixed month for the banks, however. Deutsche Bank surged by 22.40%, while Commerzbank ended the month down by 0.91%.

From the CAC, it was a particularly bullish month for the banking sector. BNP Paribas and Credit Agricole jumped by 23.88% and by 23.77% respectively. Soc Gen led the way, however, surging by 32.97%.

It was also a bullish month for the auto sector. Renault rose by 5.33%, with Stellantis NV ended the month up by 7.27%.

Air France-KLM and Airbus SE reversed January’s losses, with gains of 14.37% and 15.28% respectively.

On the VIX Index

It was back into the red for the VIX in February, leading to just a 2nd monthly fall in 7-months. Partially reversing a 45.45% jump from February, the VIX fell by 15.53% to end the month at 27.95.

In January, NASDAQ rose by 0.93%, while the Dow and S&P500 ending the month up by 3.17% and by 2.61% respectively.

VIX 270221 Monthly Chart

The Month Ahead

We can expect more of the same in the month ahead on the Eurozone economic calendar. While the markets will look for manufacturing sector activity to deliver, service sector conditions will also need to improve.

Consumer spending will need to pick up across the Euro bloc to support a more sustained economic recovery.

From the U.S, nonfarm payrolls, service sector activity, and consumer confidence will remain key areas of focus.

Out of China, trade data and private sector PMIs will also provide direction.

On the monetary policy front, expect any hawkish chatter to catch the markets off-guard.

Central banks will need to be agile near-term to manage any material shift in economic indicators. The markets will be looking to pre-empt any shift in central bank forward guidance.

Away from the economic calendar, expect COVID-19 news and geopolitics to also influence. In particular, the markets will be looking for an easing to lockdown measures as progress is made on the COVID-19 vaccination front.

Geopolitically, Iran’s nuclear agreement is back in the spotlight. The U.S attack on Iran-linked groups in Syria in late February will set to the tone as both sides look to return to the negotiating table.

From China, not only will the markets need to see continued improvement in economic indicators but also better relations with the U.S on foreign policy and trade…

Gold Price Forecast – Major Breakdown or Buying Opportunity

I am beginning to see investors panic and turn bearish on gold as prices slip below $1750. That tells me we could be approaching a selling climax and an important low. The big picture chart of gold remains decisively bullish and points to higher prices for years to come.

GOLD BIG PICTURE UPDATE

GOLD MONTHLY TREND CHART: I like to turn to the monthly gold chart for a big picture perspective. Looking at the top indicator, you will see this is the first Monthly Stochastics dip below 80 in a new bull market. We had a similar setup in 2003 when gold dropped to $320, which turned out to be a superb buying opportunity. I believe the same is true now.

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The 20-Month Average (pink line above): In bull markets, gold prices should hold above the rising 20-month average (currently $1700). The only exception is when prices dip into an 8-year low (like 2008). Note- The next 8-year low is not due until 2024.

GOLD PRICES AFTER SEPTEMBER 2001: After the initial shock of the 911 attack, gold prices fell back to pre-9/11 levels ($270) a few months later. That turned out to be one heck of an opportunity. I see the same setup now as gold approaches pre-Covid levels.

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GOLD NOW: I believe we could be close to a bottom in gold. Prices could spike lower over the coming days if the stock market sells off, but I think that would be temporary. If we look back 5-years from now, I believe we will consider today’s prices an amazing long-term opportunity.

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In summary, Covid-19 was a pivotal turning point across the globe. There is a lot more money in circulation but the same amount of gold. Just like there was a brief opportunity to buy gold at pre-911 prices a few months after the event, investors are receiving a similar chance in gold now, in my opinion.

I believe now is the time to be greedy when others are fearful.

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For more information, please visit here.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: A Month in Review – January 2021

The Majors

It was bearish month for the European majors in January, with COVID-19 weighing on riskier assets in the final week of the month.

The DAX30 and CAC40 fell by 2.08% and by 2.74%, with EuroStoxx600 ending the month down by 0.80%.

In the final week, the DAX30 and EuroStoxx600 slid by 3.18% and by 3.11% respectively, with the CAC40 falling by 2.88%.

The sell-off in the final week dragged the European majors into the red for the month and the current year.

For the European majors, vaccine supply shortages, low vaccination rates, and a continued rise in new cases weighed heavily.

The threat from new and more virulent strains of the coronavirus added to the market angst in the month.

With member states in extended lockdown mode, sentiment towards the economic outlook deteriorated as a result.

Economic data from the Eurozone reflected this, with both consumer and business confidence also waning.

The Stats

It was a busier month on the Eurozone economic calendar.

Key stats included prelim January private sector PMIs for France, Germany, and the Eurozone and consumer and business sentiment figures.

4th quarter GDP numbers for France, Germany, and Spain also drew interest late in the month.

Private sector PMI delivered mixed results for January.

The Eurozone’s composite PMI fell from 49.1 to 47.5 in January, according to prelim figures.

While France’s manufacturing sector saw a pickup in activity, Germany’s saw a modest slowdown.

The effect of lockdown measures across France and Germany were felt in the services sector, however.

France’s service PMI fell from 49.1 to 46.5, with Germany’s falling from 47.0 to 46.8.

Business sentiment in Germany weakened in January, with the ifo Business Climate Index falling from 92.2 to 90.1. Economists had forecast a more modest decline to 91.8. After 8 consecutive rises, the manufacturing index fell from 1.4 to -3.0 in January. The decline was attributed to less optimistic expectations amongst manufacturing firms.

Things were not much better amongst German consumers, with the GfK is forecasting a slide in consumer sentiment from a revised -7.5 to -15.6 points.

There was a sharp fall in the propensity to buy indicator, with income expectations also taking a hit. Consumer sentiment towards the economic outlook, however, saw less of a severe fall in the month.

4th quarter GDP numbers affirmed market fears of a slowdown in the economic recovery.

The French economy contracted by 1.3%, with the German and Spanish economies growing by just 0.1% and by 0.4% respectively.

Extended lockdowns through January and into February are likely to lead to contractions in the 2nd quarter.

From the U.S

Economic data also delivered mixed results. Consumer confidence picked up marginally in January, while labor market conditions remained dire.

In spite of this, private sector PMIs from the U.S were upbeat, supporting a more bullish economic outlook.

The Manufacturing PMI increased from 57.1 to 59.1 in January, with the services PMI climbing from 54.8 to 57.5.

Initial jobless claims figures continued to raise concerns over consumption, however. In the week ending 22nd January, initial jobless claims eased back to 847k. While down from a January high 965k in the week ending 8th January, this was still an elevated figure.

The good news for the U.S economic outlook remained the U.S administration’s vaccination drive and access to vaccines, raising hopes of a near-term end to the pandemic.

Monetary Policy

The ECB stood pat on monetary policy, with ECB President Lagarde standing by the ECB’s growth forecast for 2021. Late in the month, however, the ECB President did raise caution over the possible impact of extended lockdown measures.

Inadequate COVID-19 vaccine supply raised economic uncertainty late in the month.

The FED also left monetary policy unchanged, which was in line with market expectations. There were some concerns over possible plans to taper bond purchases. FED Chair Powell failed to comfort the markets in spite of providing assurances that there would be no near-term tapering.

The Market Movers

For the DAX: It was a mixed month for the auto sector in January. Volkswagen and Daimler rose by 3.04% and by 0.38% respectively, while Continental and BMW fell by 4.66% and by 2.99% respectively.

It was also a mixed month for the banks. Deutsche Bank slid by 6.70%, while Commerzbank ended the month up by 3.98%.

From the CAC, it was a bearish month for the banking sector. Credit Agricole and Soc Gen slid by 9.11% and by 9.28% respectively, with BNP Paribas ending the month with a loss of 7.70%.

It was also a bearish month for the auto sector. Renault fell by a relatively modest 1.45%.

Weighed by COVID-19 news, Air France-KLM fell by 4.71%, with Airbus SE sliding by 7.33%.

On the VIX Index

It was a 2nd consecutive month in the green for the VIX in January to mark a 5th monthly gain in 6-months. Following a 10.60% rise in December, the VIX jumped by 45.45% to end the month at 33.09.

Uncertainty over FED monetary policy and the economic outlook stemming from new strains of the coronavirus supported the VIX.

In January, NASDAQ rose by 1.42%, while the Dow and S&P500 ending the month down by 2.04% and by 1.11% respectively.

VIX 300121 Monthly Chart

The Month Ahead

We can expect another busy month ahead on the Eurozone economic calendar. With greater focus on the economic data at the turn of the year, the markets will be looking to digest January and February data.

Lockdown measures remain in place in, which is expected to further delay any meaningful economic recovery.

Key stats through the month will include February private sector PMIs, retail sales, unemployment, and business and consumer confidence.

Any further deterioration in economic conditions will test support for the EUR and the European equity markets.

From the U.S, nonfarm payrolls, service sector activity, and consumer confidence will be key areas of focus.

Out of China, trade data and private sector PMIs will also provide direction.

On the monetary policy front, any gloomier economic outlook would also be a negative.

Away from the economic calendar, expect COVID-19 news and vaccination updates to remain key, however.

Vaccination supply to the EU will need to materially pickup to support a vaccination drive and lift vaccination rates. Failure to achieve this would likely leave containment measures in place, which would weigh more heavily on the Eurozone economy.

European Equities: A Month in Review – December 2020

The Majors

It was another bullish month for the European majors in December, with COVID-19 vaccine news Brexit delivering further support.

The DAX30 rallied by 3.22% to lead the way, with the CAC40 and EuroStoxx600 gaining 0.60% and 2.48% respectively.

The gains were not as impressive as those seen in November, however, with lockdowns and a new strain of the virus testing investor sentiment.

After having seen 2 consecutive months in the red, however, a 2nd consecutive monthly gain consolidated November’s rebound.

Adding to support for the majors, was progress towards a U.S stimulus package.

A Brexit deal, a U.S stimulus package, with the promise of more, and COVID-19 vaccines delivered optimism towards next year.

On 30th December, the House of Commons voted 521 for and 73 against the Brexit Agreement ahead of Britain’s departure at 2300 GMT on 31st December. The House of Lords also passed the Bill.

Also on the political front, there was plenty of action in the wake of the U.S Presidential Election. In the end, departing President Trump failed to overturn the outcome, while managing to disrupt politics on Capitol Hill.

The Stats

It was a quieter month on the Eurozone economic calendar.

Key stats included prelim December private sector PMIs for France, Germany, and the Eurozone and consumer and business sentiment figures.

A pickup in manufacturing sector activity in Germany and a return to expansion in France’s manufacturing sector delivered support.

While the services sector continued to contract, the rate of contraction eased in both France and Germany.

As a result, the Eurozone’s Composite rose from 45.3 to 49.8 in December, according to prelim figures. The all-important manufacturing PMI increased from 53.8 to 55.5.

Containment measures across member states continued to weigh on service sector activity at the end of the year.

From Germany, the Ifo Business Climate Index increased from 90.9 to 92.1, with the ZEW Economic Sentiment Indicator rising from 39.0 to 55.0. Positive vaccine news delivered the upside for both in December.

A marginal fall in consumer confidence in Germany had a muted impact. The GfK Consumer Climate Index fell from -6.8 to -7.3. Lockdown measures across Germany weighed on the index for January.

From the U.S

Economic data delivered mixed results. Consumer confidence waned in December, with the CB Consumer Confidence Index falling from 96.1 to 88.6 in December.

Retail sales saw another decline in November, with core retail sales falling by 0.9%, following a 0.1% decline in October.

Prelim private sector PMI numbers for December also disappointed. The manufacturing PMI slipped from 56.7 to 56.5, with the Services PMI falling from 58.4 to 55.3.

While the jobless claims figures delivered mixed results throughout the month, the numbers remain skewed to the negative.

Initial jobless claims had fallen back to a low 712k in the week ending 27th November before jumping to 885k in the week ending 11th December. While easing back to 803k the following week, claims remained elevated amidst the 2nd wave of the pandemic.

Other key stats included core durable goods orders for November, which came up short of forecasts, and November’s nonfarm payrolls, which also disappointed.

In November, nonfarm payrolls rose by 245k, following a 638k increase in October.

From elsewhere, economic data from China continued to impress. Fixed asset investments, industrial production, and retail sales all saw a pickup in November.

On the trade front, the USD trade surplus widened from $58.44bn to $75.42bn, with exports surging by 21.1%.

At the end of the month, private sector PMIs for December reflected a slight easing in private sector activity but no by a significant margin. The NBS Manufacturing PMI fell from 52.1 to 51.9, with the Non-Manufacturing PMI falling from 56.4 to 55.7.

Monetary Policy

The ECB did test support for the majors by downwardly revising growth forecasts for 2021. Additionally, the ECB increased the PEP by €500bn. The downward revision came as EU member states reintroduced containment measures as a result of the 2nd wave of the pandemic.

From the FED, while the FED revised upwards economic forecasts, the promise of holding bond purchases and interest rates at current levels left a dovish tone.

In December, the FED left interest rates unchanged.

The Market Movers

For the DAX: It was a mixed month for the auto sector in December. Volkswagen rallied by 7.63%, with Continental and Daimler rising by 5.94% and by 2.08% respectively. BMW bucked the trend, however, falling by 0.96%.

It was also a mixed month for the banks. Deutsche Bank slid by 4.18%, while Commerzbank ended the month up by 7.14%.

From the CAC, it was another bullish month for the banking sector. Credit Agricole rallied by 6.72%, with BNP Paribas and Soc Gen ending the month with gains of 0.30% and 1.98% respectively.

It was a particularly bullish month for the auto sector. Peugeot jumped by 13.21%, with Renault gaining 7.23%.

Supported by COVID-19 vaccine news, Air France-KLM consolidated November’s 77.94% rebound with a 2.40% gain. Airbus SE followed November’s 40.17% surge with a 2.34% rise in December.

On the VIX Index

It was back into the green for the VIX in December to mark a 4th monthly gain in 5-months. Partially reversing a 45.9% slump from November, the VIX rose by 10.60% to end the month at 22.75.

COVID-19 vaccines and U.S politics, coupled with assured support from the FED delivered support for riskier assets in the month.

A continued rise in new COVID-19 cases supported the upside in the VIX.

In November, NASDAQ rallied by 5.65%, with the Dow and S&P500 ending the month up by 3.27% and by 3.71% respectively.

VIX 010121 Monthly Chart

The Month Ahead

We can expect another busy month ahead on the Eurozone economic calendar. Having taken a backseat of late, economic data will begin to have a greater impact on the markets once more.

Key through the month will be January private sector PMIs, retail sales, unemployment, and business and consumer confidence.

The markets will be looking for a continued recovery across the private sector and a pickup in consumer spending.

Both business and consumer confidence will need to improve to deliver support.

From the U.S, nonfarm payrolls, service sector activity, and consumer confidence will be key areas of focus.

Out of China, trade data and private sector PMIs will also provide direction.

On the monetary policy front, the promise of continued support will also influence.

Away from the economic calendar, expect COVID-19 news and vaccination updates and chatter from Capitol Hill to also provide direction. The markets are expecting the Democrats to deliver more stimulus. There is also the Senate race to factor in.

European Equities: A Month in Review – November 2020

The Majors

It was a particularly bullish month for the European majors in November, with COVID-19 vaccine news delivering a much-needed bounce.

After 2 consecutive months in the red, the CAC40 surged by 20.12%. The DAX30 and the EuroStoxx600 weren’t far behind, with gains of 15.01% and 13.73% respectively. For the DAX30, November’s gains reversed losses from the year to move into positive territory year-to-date. The CAC40 and EuroStoxx600 still have some way to go in order to reverse losses from earlier in the year, however.

While the news of a COVID-19 vaccine drove demand for riskier assets, Joe Biden’s victory in the Presidential Election added support for riskier assets.

On the negative side, however, was a reintroduction of lockdown measures by member states including France and Germany.

Towards the end of the month, the COVID-19 numbers reflected the effect of the lockdown measures.

In France, the number of new COVID-19 cases and hospitalizations were in decline allowing the government to ease lockdown measures going into December.

On the geopolitical risk front, last-ditch Brexit negotiations failed to deliver a deal, which left the majors in the red at the end of the month.

The Stats

It was a busy month on the Eurozone economic calendar. Looking at the private sector PMIs, it was a disappointing set of numbers for November.

Service sector activity contracted in France, Germany, and across the Eurozone as a result of a reintroduction of containment measures.

France’s services sector suffered the most, with the PMI tumbling from 46.5 to 38.0. With Germany’s Services PMI falling to 46.2, the Eurozone’s Services PMI fell from 46.9 to 41.3.

While Germany’s manufacturing sector avoided a contraction, sector activity in France contracted. The PMI fell from 51.3 to 49.1, dragging the Eurozone’s Composite PMI down from 50.0 to 45.1.

In spite of the disappointing numbers, hopes of a COVID-19 vaccine fuelled economic recovery fuelled muted the effect of the PMIs.

Other stats were mixed in the month.

Consumer and business sentiment weakened in October as a result of the 2nd wave of the pandemic and lockdown measures.

Germany’s ZEW Economic Sentiment Indicator fell from 52.3 to 32.8, with the Ifo Business Climate Index falling from 92.5 to 90.7.

Things were not much better on the consumer confidence front. The GfK Consumer Climate Indicator fell from -3.2 to -6.7.

For the Eurozone, consumer confidence also waned, with the Eurozone Consumer Confidence Index falling from -15.5 to -17.6.

On the positive front, however, were 3rd quarter GDP numbers for France, Germany, and the Eurozone. The respective economies had made progress in recovering from the 2nd quarter economic meltdown before November’s lockdown measures.

From the U.S

Labor market stats pointed to a stalling in the labor market recovery. Initial jobless claims inched up to 778k after having eased down to 709k in the 1st week of November.

While new COVID-19 cases surged across the U.S and a number of states reintroduced containment measures, COVID-19 vaccine news eased any market tensions in the month.

As a result of the jump in COVID-19 cases, consumer confidence softened in November. The CB Consumer Confidence Index fell from 101.4 to 96.1, with the Michigan Consumer Sentiment Index falling from 77.0 to 76.9.

On the positive, however, were private sector PMIs. Both the manufacturing and services sectors saw activity pick up in November.

In November, the Markit Manufacturing PMI rose from 53.4 to 56.7, with the Services PMI rising from 56.9 to 57.7.

The divergence from the Eurozone stemmed from a decision by the U.S administration to keep the economy running.

Monetary Policy

The ECB monetary policy meeting minutes, Economic Bulletin, and Financial Stability Review talked of doom and gloom.

From the minutes and other ECB reports and from ECB President Lagarde commentary, the markets are expecting further policy easing, however.

While the ECB minutes stated that there should be no commitments made, the 2nd wave COVID-19 pandemic is likely to force the ECB’s hands. It remains to be seen how far the ECB will go with a COVID-19 vaccine on the horizon.

From the FED, the FOMC meeting minutes also provided few surprises. Both central banks were focused on the effects of COVID-19 on their respective economies.

The respective minutes followed decisions by both to keep rates unchanged in the month.

The Market Movers

For the DAX: It was a bullish month for the auto sector in November. Daimler surged by 26.99%, with BMW and Continental jumping by 23.99% and by 24.73% respectively. Volkswagen trailed with a 12.52% gain in the month.

It was also a bullish month for the banks. Deutsche Bank rallied by 17.04%, with Commerzbank ending the month up by an impressive 28.8%.

From the CAC, it was a particularly bullish month for the banking sector. BNP Paribas surged by 43.95%, with Credit Agricole and Soc Gen ending the month with gains of 42.63% and 43.38% respectively.

It was also a bullish month for the auto sector. Peugeot rose by 28.06%, with Renault jumping by 56.94%.

Supported by COVID-19 vaccine news, however, it was Air France-KLM that impressed the most with a 77.94% rebound. Airbus SE also impressed, surging by 40.17%.

On the VIX Index

It was back into the red for the VIX in November, ending a run of 2 consecutive monthly gains. Reversing a 44.18% surge in October, the VIX tumbled by 45.90% to end the month at 20.57.

The downside for the VIX came as pharmas released impressive COVID-19 phase 3 clinical trial results. Talk of a vaccine being available by mid-December supported riskier assets, which sank the VIX.

In November, the Dow and NASDAQ rallied by 11.84% and by 11.80% respectively, with the S&P500 ending the month up by 10.75%.

VIX November Monthly Chart

The Month Ahead

We can expect another busy month ahead on the Eurozone economic calendar. Much of the economic data, however, will likely take a backseat in the month ahead.

We would expect COVID-19 vaccine updates and any progress towards a COVID-19 stimulus package on Capitol Hill to be key drivers.

On the geopolitical front, there’s also Brexit for the markets to consider. In late November, last-ditch talks failed to deliver an agreement. The two sides have just one month left until the end of the transition period.

Key stats that will draw interest, however, will include private sector PMIs for December, unemployment figures, and consumer and business sentiment numbers.

From the U.S, private sector PMIs, labor market numbers, and consumer confidence and spending will also influence.

There are also stats out of China that will need to continue reflecting China’s post-pandemic economic recovery.

European Equities: A Month in Review – October 2020

The Majors

It was another bearish month for the European majors in October, with COVID-19 and U.S politics weighing on risk sentiment.

A particularly bearish final 2-weeks of the month did the damage as EU member states reintroduced lockdown measures.

New COVID-19 cases surged by record levels across EU member states forcing governments to respond. The reintroduction of lockdown measures is expected to drag the Eurozone economy back into the red for the 4th quarter.

From the U.S, a failure to deliver a fiscal stimulus package ahead of the U.S Presidential Election added to the market angst in the month.

With the U.S Presidential Election in the 1st week of November, there was also some uncertainty over the likely outcome.

Trump’s unwillingness to concede in a closely fought race was also a concern in the run into Election Day.

The DAX30 slid by 9.44%, following a 1.43% decline in September. Things were not much better for the CAC40 and EuroStoxx600, which ended the month down by 4.36% and by 5.19% respectively. In September, the pair had fallen by 2.91% and by 1.48% respectively.

The Stats

It was a busy month on the Eurozone economic calendar. Looking at the private sector PMIs, it was another mixed bag for the month of October. While the manufacturing sector saw activity pick up, service sector activity contracted at a faster pace in October.

With the Eurozone reintroducing lockdown measures, things are likely to get worse for the services sector before there is any pickup in sector activity.

The Eurozone’s Service PMI fell from 48.0 to 46.2, with the composite PMI falling from 50.4 to 49.4.

Other stats were also mixed in the month.

Consumer and business sentiment weakened in October as a result of the 2nd wave of the pandemic, Brexit, and the U.S Presidential Election.

At the end of the month, German unemployment figures impressed. The impact on the EUR and the majors were modest, however, with labor market conditions expected to deteriorate.

GDP numbers for the 3rd quarter were also impressive, though expectations of a 4th quarter contraction muted the impact on the majors.

In the 3rd quarter, the Eurozone’s economy expanded by 12.7%, recovering from the 2nd quarter 11.8% contraction. Year-on-year, however, the economy shrank by 4.3%, following a 14.7% contraction in the 2nd quarter.

Germany’s economy expanded by 8.2% in the 3rd quarter, with France’s surging by 18.2%. Concerns over the economic outlook for the 4th quarter softened the impact of the stats, however.

While the GDP numbers were upbeat, consumer spending figures for September disappointed.

In France, consumer spending slumped by 5.1%, with retail sales falling by 2.2% in Germany. Both reported numbers that reversed August figures ahead of lockdown measures introduced in October and next week.

Prelim inflation figures for October continued to reflect deflationary pressures at the turn of the quarter. For the Eurozone, consumer prices fell by 0.3%, year-on-year, following a 0.3% decline in September. The annual core rate of inflation held steady at 0.2%, however.

From the U.S

Labor market conditions saw a modest improvement, with weekly jobless claims falling to sub-800k levels

Private sector PMI numbers were positive for October, according to prelim figures. The all-important Services PMI rose from 54.6 to 56.0, with the Manufacturing PMI rising from 53.2 to 53.3.

At the end of the month, 3rd quarter GDP numbers also impressed, with the U.S economy recovering from the 2nd quarter meltdown.

While the v-shaped economic rebound was affirmed, the impact was modest as a result of the jump in new COVID-19 cases. The threat of new containment measures tested market risk appetite late in the month.

This was also reflected in consumer sentiment figures, with the CB Consumer Confidence Index disappointing in October.

Monetary Policy

For the ECB, there were no major surprises, with the ECB holding monetary policy unchanged.

ECB President Lagarde did assure the markets of further easing in December, however, which left the EUR at sub-$1.17 levels.

Ahead of 3rd quarter GDP numbers on Friday, the ECB President had also noted that, while 3rd quarter GDP numbers will likely impress, the Eurozone economy would likely contract in the 4th quarter.

The comments muted the impact of the GDP numbers on the European majors on the final day of the month.

The Market Movers

For the DAX: It was a bearish month for the auto sector in October. Volkswagen slid by 9.05% to lead the way down. BMW and Daimler also struggled, falling by 4.93% and by 2.92% respectively. Continental saw a more modest 0.39% loss in the month.

It was a mixed month for the banks, however. Deutsche Bank rallied by 11.76%, while Commerzbank ended the month down by 3.53%.

From the CAC, it was a mixed month for the banking sector. Soc Gen rose by 2.83%, while BNP Paribas and Credit Agricole fell by 3.65% and by 2.94% respectively.

It was a bearish month for the auto sector, however. Peugeot fell by 0.45%, with Renault sliding by 4.24%.

Air France-KLM followed September’s 21.56% slump with a 5.13% loss, while Airbus SE rose by 0.84%.

On the VIX Index

The VIX surged by 44.18% in October, marking a 3rd monthly rise in 7-months. Following a 0.15% decline in September, the VIX ended the month at 38.02.

Across the U.S equity markets, it was a bearish month as Presidential Election jitters and a surge in new COVID-19 cases weighed in market risk appetite. The Dow slid by 4.61%, with the NASDAQ and the S&P500 ending the month down by 2.29% and by 2.77% respectively.

VIX 31/10/20 Monthly Chart

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

After yet more mixed private-sector numbers for October, the markets will be looking to assess the damage stemming from the 2nd wave of the COVID-19 pandemic

Expectations are for economic conditions to see a marked deterioration as a result of new lockdown measures.

With the Eurozone entering the winter months, updates on COVID-19 will remain a key driver.

A continued rise in new cases and further lockdown measures would likely weigh on consumer and business confidence.

Consumer spending and business investment would then take a hit, all of which would be negative for the majors.

Upside could come, however, should there be progress towards an effective COVID-19 vaccination.

On the geopolitical front, there’s never a dull moment. Both Brexit and the U.S Presidential Election will be front and center.

Brexit talks continued through October, with the EU eager to make progress following Boris Johnson’s decision to end negotiations. UK fisheries remained the stumbling block going into November, with mid-November considered the ultimate deadline for any agreement.

European Equities: A Month in Review – September 2020

The Majors

It was a relatively bearish end to the quarter for the European majors in September, with the downside coming off a bullish month of August.

A final week reversal left the majors in the red for the month. The DAX30 had been up by more than 2% before a downward trend kicked in from mid-month.

The DAX30 fell by 1.43%, partially reversing a 5.13% gain from August. Things were not much better for the CAC40 and EuroStoxx600, which ended the month down by 2.91% and by 1.48% respectively. In August, the CAC40 and EuroStoxx600 had risen by 3.42% and by 2.86% respectively.

September’s pullback left the CAC40 (-2.69%) in the red for the quarter. The DAX30 and EuroStoxx600 rose by 3.65% and by 0.21% respectively, however.

Mixed economic data once more tested market sentiment towards the global and Eurozone economic recovery.

Fresh spikes in new COVID-19 cases across the EU sounded the alarm bells as the summer came to an end. Concerns over the reintroduction of more stringent containment measures to curb the latest spike weighed.

Negative sentiment towards Brexit and the chances of both sides reaching an agreement added further pressure in the month.

The Stats

It was a busy month on the Eurozone economic calendar. Looking at the private sector PMIs, it was a mixed bag for the month once more.

Following disappointing August PMIs, September’s prelim PMIs delivered mixed results.

While manufacturing sector activity picked up, service sector activity contracted at the end of the quarter. With the ECB looking for a consumer-driven economic recovery, the service sector PMIs were a concern…

The Eurozone’s Service PMI fell from 50.5 to 47.6, with the composite PMI falling from 51.9 to 50.1.

Other stats were also mixed in the month.

Consumer and business sentiment saw marginal improvements in September. By contrast, deflationary pressures raised concerns, pressuring the European majors in the month.

At the end of the month, unemployment and consumer spending figures impressed, though provided little support. The pickup in new COVID-19 cases and further evidence of deflationary pressures countered the upbeat numbers.

Prelim inflation figures for September pointed to a pickup in deflationary pressures at the end of the quarter.

While economic data from the Eurozone failed to impress, stats from China continued to support the optimistic economic outlook.

From the U.S

Weekly jobless claims failed to continue to slide, raising concerns that the U.S economic recovery had hit a speed bump.

Non-manufacturing PMI numbers for August and prelim service sector PMIs for September also pointed to slower growth in the sector.

In spite of this, nonfarm payrolls continued to add, with the U.S unemployment rate falling to 8.4% in August.

Other positives in the month included a jump in consumer confidence and solid ADP nonfarm figures ahead of September NFP numbers tomorrow.

While the stats were somewhat mixed, Trump’s targeting of Chinese companies and chip suppliers continued to test market risk appetite.

There was some reprieve late in the month, with the court’s ruling to temporarily block Trump’s attempted ban on TikTok.

On the final day of the month, the 1st presidential debate also drew plenty of market attention… Ultimately, a disruptive debate weighed heavily on riskier assets at the end of the month.

Monetary Policy

On the monetary policy front, the FED was in action. Lower for longer was the message, with Powell highlighting economic uncertainty stemming from COVID-19.

Projections showed that interest rates would sit at close to zero until 2023, which caught the markets off-guard, weighing on riskier assets. There was also a revised framework, though much of the revisions had been telegraphed well in advance.

Later in the month, there was much the same from the FED Chair, who delivered testimony on Capitol Hill.

For the ECB, there were no major surprises, with the ECB also talking of economic uncertainty.

A hot topic in the September ECB press conference was EUR appreciation. The ECB President was quick to point out that the ECB does not target exchange rates. Lagarde did note, however, that price stability would continue to be monitored. The comments followed on from concerns raised over a pickup in deflationary pressures.

The Market Movers

For the DAX: It was a mixed month for the auto sector in September. Daimler led the way once more, rallying by 7.54%. BMW and Continental also found support, with gains of 2.08% and 1.19% respectively, while Volkswagen fell by 1.04%.

It was also a bearish month for the banks, however. Deutsche Bank slid by 11.08%, with Commerzbank ended the month down by 13.78%.

Another bank scandal contributed to the demise of the banks in the month.

From the CAC, it was a particularly bearish month for the banking sector. Soc Gen slumped by 16.64% to lead the way down. BNP Paribas and Credit Agricole weren’t far behind, with losses of 15.26% and 13.04% respectively.

It was a mixed month for the auto sector, however. Peugeot rose by 7.86%, while Renault slid by 6.92%.

Air France-KLM stumbled by 21.56%, as a result of the spike in new COVID-19 cases, with Airbus SE falling by 9.83%.

On the VIX Index

The VIX slipped by just 0.15% in September to market a 4th monthly decline in 6-months. Partially reversing a 7.97% gain from August, the VIX ended the month at 26.37.

The VIX had seen 4 consecutive months in the green that had led to its recent high 85.47 in March before the downward trend began in April.

Across the U.S equity markets, it was a bearish month in spite of a visit to fresh record highs at the start of the month. The Dow and the S&P500 fell by 2.28% and by 3.92% in September, with NASDAQ sliding by 5.16%.

VIX 01/10/20 Monthly Chart

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

After yet more mixed private-sector numbers for September, the markets will be looking for private sector activity to pick up.

The key to any pickup will be a continued improvement in consumer and business confidence. While employment conditions have improved, the latest spikes in new COVID-19 cases ahead of the winter months is a concern. The COVID-19 numbers will influence as winter dawns on Europe.

A failure for economic data to reflect improving economic conditions will test market risk appetite at the turn of the quarter.

On the geopolitical front, there’s never a dull moment. Both Brexit and the U.S Presidential Election will be front and center.

Expect Trump to continue to target China over trade and the COVID-19 pandemic throughout the month that could test already frayed relations.

For the Pound, the EUR, and the European majors, the EU and the UK government will be looking for a last-minute agreement. Failure to reach an agreement in the month may well leave Britain without a deal, which would be market negative.

European Equities: A Month in Review – August 2020

The Majors

It was a bullish month for the European majors in August, though a bearish end of the month cut the gains from earlier on the month.

4 days in the red out of the last 5 left the majors with relatively modest gains for August.

The DAX30 gained 5.13%, following a 0.02% gain from July, with the CAC40 and EuroStoxx600 rising by 3.42% and by 2.86% respectively. The pair had fallen by 3.49% and by 2.98% respectively in the month prior.

There was plenty of action in the month, which ultimately provided the European majors with support.

While economic data influenced, geopolitics and fiscal and monetary policy were the key drivers in the month.

The German government announced extended fiscal support to combat the impact of the COVID-19 pandemic supporting the DAX30.

From France, the French government wasn’t far behind promising new measures in September to also support the economic recovery.

The measures from the respective governments muted the impact of fresh spikes in new COVID-19 cases across EU member states.

From the U.S, FED monetary policy pressured the European majors. Positive updates from the U.S and China trade talks added further support, however. China announced its willingness to stick to the terms of the phase 1 agreement, which eased tensions.

Tech was in the spotlight in the month once more, as Trump continued to target Chinese tech companies in the interest of national security.

All in all, however, the promise of more monetary support, unwavering fiscal support from member states, and talk of progress towards a COVID-19 vaccine were good enough.

The Stats

It was a busy month on the Eurozone economic calendar. Looking at the private sector PMIs, it was a mixed bag for the month.

While July numbers impressed at the start of the month, with finalized PMIs revised upwards, August numbers were less impressive.

Private sector activity waned in August, according to the prelim numbers. The Eurozone’s composite slipped from 54.7 to 51.6.

Significantly, France saw its manufacturing sector contract in August. From an economic outlook perspective, the figures certainly questioned the market’s outlook on the v-shaped economic recovery.

Other stats were also mixed in the month.

While German business sentiment improved in August, consumer sentiment took a hit, delivering yet more uncertainty.

From France, consumer spending was also lackluster as consumer confidence held steady in August.

The stats supported the ECB’s uncertainty over what lies ahead from an economic recovery perspective.

Consumer confidence and spending remain key. While fiscal stimulus will support, consumers will need to go about their business to support the economy.

From the U.S

Weekly jobless claims were a test for the markets in the month. While claims were in decline early in the month, claims moved northwards in the 2nd half of the month. The figures suggested that the labor market recovery stalled mid-way through the 3rd quarter.

On the positive, was a further pickup in service sector activity and continued rise in nonfarm payrolls.

Of concern late in the month would have been an unexpected slide in consumer confidence in August, however.

Ultimately, it was yet another mixed set of numbers from the U.S, adding uncertainty to plague the markets at current levels.

Monetary Policy

On the monetary policy front, the FED was in action. A gloomy set of FOMC minutes weighed on riskier assets. The FED Chair and the FED’s revised monetary policy also weighed late in the month.

The promise of support for longer delivered monetary policy divergence favoring the EUR. A pickup in the EUR was an added negative for the European majors.

The Market Movers

For the DAX: It was a bullish month for the auto sector. Daimler led the way, rallying by 14.48%. BMW (+10.97%), Continental (+11.32%), and Volkswagen (+11.87%) also saw solid gains in the month.

It was also a bullish month for the banks. Deutsche Bank rose by 5.94%, with Commerzbank ended the month up by 11.82%.

From the CAC, it was a bullish month for the banking sector. BNP Paribas led the way, rising by 7.15%. Credit Agricole and Soc Gen saw more modest gains of 5.66% and 4.62% respectively.

It was also a bullish month for the auto sector. Peugeot rose by 5.35%, with Renault jumping by 18.84%.

Air France-KLM and Airbus SE also saw green, with the pair ending the month up by 8.23% and 11.01% respectively.

On the VIX Index

The VIX rose by 7.97% in August, delivering just a 2nd monthly gain in 5-months. Partially reversing a 19.62% slide from July, the VIX ended the month at 26.41.

The VIX had seen 4 consecutive months in the green before the downward trend began in April.

Across the U.S equity markets, it was yet another impressive run. The S&P500 and NASDAQ hit fresh record highs in the month, with the Dow also finding strong support.

For the month of August, the NASDAQ rallied by 9.59%, with the S&P500 and Dow seeing gains of 7.01% and 7.57% respectively.

VIX 01/09/20 Monthly Chart

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

After some mixed private-sector numbers for August, the markets will need some convincing in the month ahead.

An uptick in private sector activity, consumer and business confidence, and spending will be a must. Labor market conditions will also need to improve considerably to support any hope of a consumption-driven recovery.

A stronger EUR and any pick up in inflationary pressures would test consumption, however, putting pressure on the ECB. Prelim figures from the end of the month, however, point to a buildup of deflationary pressures suggesting the need of more support from the ECB.

Additionally, any failure by the ECB to pin back the EUR could make things a little testier in the month ahead.

From elsewhere, economic data from the U.S and China will also need to provide support.

On the geopolitical front, Brexit, U.S and China relations, and U.S politics will also influence.

We’re moving into the choppy time of the year and there are enough downside risks to test majors at current levels.

Technical Analysis Points to US Dollar Upside Potential – Part I

Article Highlights:

  • The US Dollar Presidential Price Cycle indicates rising US Dollar
  • The US Dollar is not the best asset, but rather the best of all currencies
  • Price Relationships Suggest The US Dollar Is Currently Undervalued
  • How The Presidential Price Cycle May Create Opportunities in Precious Metals and the US Stock Market

It’s been a while since we published an article about the US Dollar and this is the perfect time to discuss that is likely to happen over the next 6 to 18+ months.  The US Presidential Election is just around the corner and traders/investors are certain to interpret the uncertainty of the US Presidential Election cycle, and the pending policy and liability related changes, as a warning that equities and the US Dollar may be in for a wild ride over the next 6+ months.

UNDERSTANDING GLOBAL CURRENCY “SHININESS”

Typically, the US Dollar declines over the 6 to 12+ months prior to a major US Presidential election cycle.  Whenever there is a major contest for a new US President or an active and aggressive campaign between two individuals, there is a lot on the line. A US Presidential Election is not just about electing a President – it is about setting US, Foreign, Social, Economic, and Taxation polities well into the future.  How businesses and voters interpret the benefits vs. risks usually decides the outcome fairly openly.  Yet, global traders vote by deciding how much they believe in the policies and leadership in the new US President and/or how they interpret the risks related to new policies, laws, and regulations.

The US is a major driver of global economic growth throughout the world.  The US leads the four other large mature economies by 8.5% to over 20% when compared by global GDPChina is the closest economy to the US, yet it still falls nearly 8.5% behind the US economy annually.  Even if we were to combine China, Japan, Germany, and India into one economic block, it would beat the US economy by only 5.5% annually.

This is why, at least for now, unless some other global economy rises to the level to dramatically threaten the US economy, the US Dollar will likely continue to sustain value and dominance throughout the world.  It also aligns with my “Shiniest Pile Of Poop” theory.  Yea, I know that is a horrible name for a currency valuation theory – but it helps us understand how currencies (and other commodities) are processed in the minds of consumers and traders.

A simple example is that of having to dig through the garbage trying to find something to eat (again, a horrible example).  Yet, within this example, any human would automatically start ranking the quality of the garbage attempting to determine which items were the “best quality” – even though they are all trash.  This process comes naturally for anyone in this position – you simply must select the best items in the pile of trash as potential food items.

How does this relate to currencies? Even though certain currencies may become more attractive from time to time, as traders find value in them and perceive stronger future prices, the reality is that major global currencies will always be considered “shinier” than others. Keep this in mind as we explain our thinking related to the US Dollar going forward.

REPEATING US DOLLAR CYCLES

As we can see from the chart below, the US Dollar reacts to US Presidential Election cycles by typically weakening 6 to 12+ months prior to the election date.  Each of the last three US Presidential Elections was predicated by a declining US Dollar value and a rise in the US stock market.  In 2012, there was virtually no active challenger to Obama’s second term – the expected US Dollar price rotation was rather muted.  In 2016, the US experiences once of the most heated and aggressive Presidential campaigns between Hillary Clinton and Donald Trump – the expected US Dollar price rotation was much larger.  Currently, as the Presidential Election cycle heats up, we expect a similar range to the 2016~2018 US Dollar price range.

The initial downside selloff in the US Dollar appears to be nearly complete.  The second phase of the US Dollar Election cycle should prompt a moderate upside price move in the US Dollar while the US Stock market stalls ahead of the 2020 US Presidential Elections.  Our researchers equate this to the uncertainty and potential liabilities of a change in the Office of the US President and the implications related to new policies, taxation, regulation, and other future changes.  Traders move into safety within the US Stock market while higher-risk sectors weaken.  Essentially, everyone attempts to “place their bets” as to the outcome of the US Presidential Election cycle.

Isn’t it time you learned how I and my research team can help you find and execute better trades?  Our incredible technical analysis tools have just shown you what to expect months into the future.  Do you want to learn how to profit from market moves?  Sign up for my Active ETF Swing Trade Signals today! If you have a buy-and-hold account and are looking for long-term technical signals for when to buy and sell equities, bonds, or cash, be sure to subscribe to my Passive Long-Term ETF Investing Signals.

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation, investment or trading advice, or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with you in an effort to try to keep you well informed.

 

Detailed 2020/2021 Price Forecasts for Gold & Silver

This research article may get a bit technical, so please excuse us in advance if we ramble on about Measured Moves, Fibonacci Price Amplitude Arcs, and other technical jargon.  Our goal is to share with you our expectations for Gold and Silver near the end of 2020 and out into early 2021.

ARCS, MEASURES & THE US DOLLAR

Our first observation to share with you today is the potential for the  “Measured Price Moves” in Gold and Silver to continue.  We’ve seen near-perfect price advances over the past 8+ months relating to these Measured Moves.  In Gold, the Measured Move equates to about $263.20.  In Silver, the measured move equated to about $5.40.

Recently, both Gold and Silver rallied beyond the projected Measured Move level, for Gold the level was $1,945 and for Silver the level was $27.50.  The extreme breakout in Gold and Silver pushed prices well above these levels and into extreme overbought levels.  This big move in metals was propelled by the decline in the US Dollar as well.  When the US Dollar declines, metals tend to move higher.

Additionally, we believe the decline in the US Dollar was partially related to the uncertainty related to geopolitical events and US policy events over the past few weeks.  The US government leads the world, in a lot of way, in terms of Congress and Fed policies and capital controls.  Uncertainty related to future expectations could cause the US Dollar and metals to move dramatically.

We also want to highlight the Fibonacci Price Amplitude Arcs on the following Gold and Silver charts (the Arcs and Circles).  Our research team believes the current price moves indicate that these upside Measured Moves in Gold and Silver are targeting the Fibonacci Price Amplitude Arc target levels related to price range expansion.  The Gold chart, below, shows how the price of Gold has move to and through each successive Fibonacci Price Amplitude level – recently clearing the 2.0x Fibonacci Price Amplitude Arc.

It is our belief that Gold will initiate another upside measured move, quite likely in correlation with a weaker US Dollar, that will target the $2,160 level next.  After that level is reached, a brief pause in price will happen before another upside measured move will target the $2,400 level.  This upside move is likely to happen before the end of January 2021.

Silver has also moved in a series of Measured Price Moves that correlate with Fibonacci Price Amplitude Arcs.  The current Measured Move level, near $27.50, was reached on August 6, 2020.  In fact, Silver rallied to a peak level of $29.91 the next day before peaking, rotating downward (retracing), and moving lower to close at $27.54 (almost exactly at our Measured Move Level).

When we add the Fibonacci Price Amplitude Arc analysis to these Measured Move structures, we quickly come to the conclusion that support near $27.50 should prompt another upside Measure Move targeting the $32.50 level.  Beyond that, we can clearly see targets near $37.50 and $42.50.  We do believe brief periods of congestion will take place throughout these upside Measured Moves – so pay attention to how price reacts near these targeted levels.  Additionally, pay attention to any future price weakness in the US Dollar as that will relate to the speed and volatility of the upside price moves in Gold and Silver.

GOLD-TO-SILVER RATIO PREDICTIONS

Our researchers posted the chart below many months ago related to the peak in the Gold-to-Silver ratio near March 19, 2020.  At that time, we suggested that a similar type of downside Pennant/Flag formation would setup, prompting a big breakdown in the extremely high Gold-to-Silver price ration.

The Gold-to-Silver ratio has recently moved from peak levels, near 125, to 73.1.  This downward ratio collapse is the result of the incredible upside price move in Silver recently.  Historically, this Gold-to-Silver price ratio should target levels near 55 (or lower) as Silver rallies to comparable price levels to Gold.  In 2010~2011, the Gold-to-Silver ratio fell to levels near 31.  This happened when Gold rallied to near $2,000 and Silver rallied to near $50.  Currently, Gold is trading just below the $2,000 level and Silver is trading near $27.50.  This suggests that Silver still has another $24+ of rally waiting to explode higher if the fear and uncertainty expectations are similar to 2010~2011.

Should Gold rally to $2,400 or higher, there is a very strong possibility that Silver could rally above $60 per ounce while Gold continues to move to near all-time highs.  In short, we believe this move higher in metals will likely continue as we head into the US Presidential Election and post-election transition.

From a trader’s perspective, the upside price trend, and the bigger downside price move setting up in November 2020 Presidential election cycle, presents very real opportunity for huge gains if you know how to time these moves and prepare for the risks.  Right now, this market and the profits therein are fantastic opportunities for skilled technical traders.  As we suggested throughout 2018 and 2019, 2020 and 2021 are going to be incredible opportunities for skilled technical traders.  This is just getting started, folks.  Pay attention and avoid unnecessary risks.

Isn’t it time you learned how I and my research team can help you find and execute better trades?  Our incredible technical analysis tools have just shown you what to expect 6+ months into the future.  Do you want to learn how to profit from these huge moves?  Sign up for my Active ETF Swing Trade Signals today! If you have a buy-and-hold account and are looking for long-term technical signals for when to buy and sell equities, bonds, or cash, be sure to subscribe to my Passive Long-Term ETF Investing Signals.

Stay healthy and rest easy at night by staying informed through our services – sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation, investment or trading advice, or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with you in an effort to try to keep you well informed.

 

European Equities: A Month in Review – July 2020

The Majors

It was a mixed month for the European majors, with a final week sell-off reversing gains from earlier in the month.

The DAX30 ended the month up by just 0.02%, while the CAC40 and EuroStoxx600 fell by 3.49% and by 2.98% respectively.

Disappointing economic data from the Eurozone and the U.S, together with a mixed bag on the earnings front weighed late in the month.

Away from the economic calendar, U.S – China tensions and a 2nd wave of the COVID-19 pandemic added to the market angst.

For the European majors, EU member state agreement on the structure of the COVID-19 Recovery Fund had provided some support.

Coupled with news of progress towards a COVID-19 vaccine and positive economic data, the DAX30 had been up by as much as 7% before falling back to sub-13,000 levels.

The Stats

It was a busy month on the Eurozone economic calendar. July’s prelim private sector PMIs and 2nd quarter GDP number were the headline stats of the month.

While June had delivered a less gloomy picture, July delivered a mixed set of stats for the markets to consider.

In the early part of the month, economic data from Germany continued to deliver positive numbers, with factory orders and industrial production seeing further upside.

Mid-month prelim July private sector PMIs from France, Germany, and the Eurozone had also given the majors a boost.

The Eurozone’s Composite PMI rose from 48.5 to 54.8, according to prelim figures.

Late in the month, however, 2nd quarter GDP numbers for France, Germany, and the Eurozone weighed on the majors.

Germany’s economy contracted by 10.10%, France’s by 13.80%, and the Eurozone’s by 12.10% in the quarter.

From the U.S

While nonfarm payrolls, the weekly jobless claims, and private sector PMI numbers had provided support early in the month, it was the weekly jobless claims, consumer confidence, and 2nd quarter GDP numbers that weighed late in the month.

2 consecutive weekly jobless claims increases and a 32.9% contraction in the U.S economy weighed on risk appetite at the month-end.

Consumer confidence also weakened in July as the U.S struggled with a 2nd wave of the COVID-19 pandemic.

Geopolitics and a failure by the U.S government to pass through the 2nd COVID-19 stimulus package was also market negative.

Monetary Policy

On the monetary policy front, there were no surprises as the ECB left monetary policy unchanged. There had been reports of discord amongst members ahead of the meeting.

The FED also left monetary policy unchanged, while assuring the markets of continued and unwavering support.

The Market Movers

For the DAX: It was a bearish month for the auto sector. Continental and Volkswagen slid by 6.49% and by 7.78% respectively to lead the way down. BMW and Daimler saw more modest losses of 4.14% and 2.64% respectively.

It was a mixed month for the banks, however. Deutsche Bank slid by 10.51%, while Commerzbank ended the month up by 9.63%.

From the CAC, it was a bearish month for the banking sector. BNP Paribas and Credit Agricole fell by 3.53% and by 3.56% respectively, while Soc Gen slid by 12.30%.

It was also a bearish month for the auto sector. Peugeot fell by 5.80%, with Renault tumbling by 11.16%

Air France-KLM and Airbus SE also saw red, with the pair seeing losses of 13.49% and 2.38% respectively.

Corporate earnings contributed to the moves.

On the VIX Index

The VIX slid by 19.62% in July, delivering a 3rd month in the red out of 4. Reversing a 10.61% rise in June, the VIX ended the month at 24.46.

The VIX had seen 4 consecutive months in the green before the downward trend began in April.

Across the U.S equity markets, the S&P500 rose by 5.51%, with the Dow and NASDAQ gaining 2.38% and 6.82% respectively.

The FED and bank and tech stock earnings provided support amidst a rising number of new COVID-19 cases in the month.

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

An upward trend in the private sector PMIs through to August would need to continue to ease concerns of a further slowdown in the recovery.

The markets would need to continue to see a further pickup in both business and consumer confidence to support consumption.

Consumers would need to see improved labor market conditions, however, to fuel consumption and a service sector-driven economic recovery.

On the monetary policy front, expect the ECB to continue to assure the markets of further support.

From elsewhere, we continue to expect stats from the U.S and China to also garner plenty of attention and have plenty of influence.

Geopolitics and COVID-19 will also remain in focus. In July, Trump had looked to distract U.S voters, which led to a diplomatic spat with China. More of the same could be on the cards in the coming month.

On the Presidential Election front, Trump remains behind in the polls, which suggests more spin and distraction. In the final week of July, Trump had even tweeted a desire to delay the Presidential Election…

Precious Metals Fire Warning Shot Across The Bow – Part II

This second part of our multi-part article researching the massive upside price move in Silver recently should cause skilled technical traders to begin sweating a bit.  In our opinion, nothing moves metals more than fear and a move like this in Silver, recently, is a very clear indication that global traders fear the current global economic ability to sustain market valuation levels in the face of bigger and more sustained economic and COVID-19 virus crisis events.

WILL THE NEXT SHOT BE A DIRECT HIT?

A series of potentially destructive economic events are lining up over the next 6 to 12+ months and they all relate to the efficiency of the economic recovery many traders have banked their long positions on.  Will the COVID-19 virus subside before the end of 2020?  Will the US consumers/workers resume their ability to earn incomes?  Will the US and global businesses survive the contraction event taking place throughout the globe?  Will local city, state, and other entities survive the contraction in tax revenues, fees, and extended costs related to this massive destructive economic event?  Will the stock market continue to rally in the face of all of these issues and what other “unknowns” are about to befall us?

The reality of the situation is that Precious Metals have already fired a massive warning shot across our Bow and skilled technical traders need to start paying attention.  Precious Metals don’t move higher by 12% to 15% like Silver just did for no reason at all.  A massive new level of fear must have hit causing global traders to push Silver prices above $23 recently.  Silver, the “other precious metal” has been stalled below $19 for many months – even while Gold pushed well above the $1750 level and higher.  This big breakout in Silver is nothing more than a phenomenal warning for all traders and investors – BE WARNED: RISKS ARE SKYROCKETING HIGHER.

We want to highlight a few of our recent research posts to help you better understand what is happening with precious metals and what to expect in the future…

September 24, 2019: IS SILVER ABOUT TO BECOME THE SUPER-HERO OF PRECIOUS METALS?

May 29, 2020: METALS NEARING CRITICAL MOMENTUM FOR NEW PARABOLIC RALLY

July 13, 2020: GOLD & SILVER MEASURED MOVES

SILVER DAILY CHART

This Daily Silver chart highlights the series of “measured moves” our research team wrote about on July 13, 2020.  These $5.40 price advances seem to happen with some degree of regularity and we believe they will continue until an upside parabolic break out of this range takes place.  That means when an upside move extends beyond the $5.40 measured move level and price attempt to move dramatically higher, then the continuation of these measured moves may be over.

Ultimately, our earlier research into technical patterns in Silver suggests a $25.50 to $26 upside price target. Yet, broader market research suggests a move above $75 to $85 in Silver ($3750 to $4995+ in Gold) is not out of the question.  What would it take for Silver to rally above $70 per ounce you may ask?  Our research team believes a broader economic, credit, and consumer event would likely have to take place for Precious Metals to rally to these levels.  Fear drives a lot of price action in metals and when investors fear valuation levels or future expectations, they often hedge their portfolios by investing in Precious Metals.  When a big move happens, like what we’ve just seen in Silver, we interpret it as “fear has materialized”.  What are traders so fearful about?  They are likely fearful of the current high price levels in the US stock market and future expectations related to consumers, trade, credit/debt, and other factors of the global economy.

SPY MONTHLY CHART

We’ve been writing about the potential for a series of economic events to unfold over the next 6+ months where consumers, cities/states, and businesses simply collapse because of the lack of earning capabilities associated with the COVID-19 virus event.  Many years ago, we wrote that “isolated economic events that disrupt smaller segments of the markets are more manageable than prolonged destructive events”. We believe the current COVID-19 virus event will transition into a prolonged economic event where a 20% to 30%+ extended contraction in revenues for many businesses, consumers, and city/state/federal governments could produce massive future risks that are still somewhat “unknown”.

We’ve also written about Super-Cycle events and warned all of our followers in August 2019 to prepare for a massively destructive Super-Cycle event to take place late in 2019 and early in 2020.  We authored this research post in July 2019 warning all of our followers of the pending collapse in the US and global markets related to Super-Cycles and other technical patterns.  What we expect to happen now is an extension of the crisis event until a bottom is established.

This SPY Monthly chart highlights some of the research our team recently completed and also suggests that a broader market failure (downside price rotation) event may take place over the next 3+ months (prior to the US Presidential Elections), where new deeper lows may be established.  The GREEN ARCING LINE on this chart represents our proprietary Fibonacci Price Amplitude Arcs, an adaptation to traditional Fibonacci Price Theory, which suggests price levels are already 7% to 9% above major resistance.  If the US stock market falters near current levels and begins to move broadly lower, we should expect a series of moderately violent downside price moves to target the $208 level on the SPY while Gold and Silver extend their upside price advance.  Fear will drive metals higher while the potential downside price event in the SPY takes place.

SILVER WEEKLY CHART

Our next upside price targets in Silver are near $28 (a full 24%+ higher than current price levels).  These measured price moves act as a stair-step process for the price to consolidate/base, begin a moderate upside move, peak, then repeat the process all over again.  Beyond the $28 price target level, the next measured move target is $32.50.  If Silver reaches the $28 or $32.50 level, you can assume fear is very present in the global markets and Gold should already be trading above $2100 (or higher).  The combination of Gold and Silver moving higher in unison should be a very clear warning that global traders don’t trust the current valuation levels of the global stock markets.

This Weekly Gold chart highlights the next measured move targets for Gold.  Although Gold has yet to reach the current measured move target, we don’t believe it will take more than 3 to 4 weeks for Gold to print a price level above $1950.  After this big move in Silver, we are moderately confident that Gold will continue to rally as well.  The bigger question for Gold is what happens after $2000?  Will it rally to $3750 as we predict?  Will it rally to $5500 or higher?

Ultimately, the upside price peak levels in Gold will relate to the extent of the fear and uncertainty that is present as a result of the continued fallout from the COVID-19 virus event and the series of revenue/earnings-based contractions we believe are just below the surface right now.  Over the next 6+ months, we believe a series of new crisis events till unfold which will highlight just how destructive the COVID-19 crisis has been.  When consumers and businesses lose 25% to 35% of their earning capacity (or more) and more than 15% of the total US population has been displaced from work/business because of these economic shutdowns – one has to expect some type of economic contraction to take place.  Honestly, it would be foolish to think the US Fed can offset 150+ million US consumers spending activities, home buying, rentals, loan payments, and other activities.  25% of the normal US GDP levels represent over $5.5 trillion – that’s a big hit to the markets if it turns out to be real.

GOLD WEEKLY CHART

We urge all of our followers to stay very cautious and to properly position your portfolios to address the risks that we feel are pending.  Yes, the US stock market has rallied substantially recently, but if you were paying attention to Precious Metals and what was really happening to US businesses and US consumers, you’ll suddenly realize the US Fed and foreign investors piling into technology stocks is not the same things as a healthy and robust US economy (like we had in 2017 and 2018).

The ultimate peak in the US economy took place in January/February 2018.  After that peak, our proprietary price modeling systems continue to suggest the US stock market and economy has been contracting.  The longer-term Super-Cycles suggest the real bottom in the markets won’t happen until somewhere between 2021 and 2023.  We have a long way to go before we see where this ultimate bottom is really going to set up.

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For a look at all of today’s economic events, check out our economic calendar.

 

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research.  It is provided for educational purposes only.  Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.

 

Gold During Covid-19 Pandemic and Beyond

What a crazy six months! Let’s look at the chart below. As you can see, over the first half of the year, gold gained more than 16 percent, rising from $1,515 at the end of December 2019 to $1,762 at the end of June 2020.

The beginning of the year was, as usual, positive for the gold prices. However, gold did not rally in January as it did in just like in the previous years. Instead, it shot up in February amid mounting worries about the COVID-19 pandemic. After a short correction at the end of the month, probably due to the initial stock market crash, the price of gold jumped to $1,684 at the beginning of March, in the aftermath of the emergency FOMC meeting, when the Fed cut the federal funds rate by 50 basis points.

Then, when the most acute part of the global stock market happened and investors were selling everything to raise cash, the price of gold plunged below $1,500, bottoming out on March 19. But the rapid spread of the coronavirus, radically accommodative response of the Fed (including slashing interest rates to almost zero) and the implementation of economic lockdowns pushed gold prices to above $1,740 in mid-April (for the first time since late 2012). There was a sideways trend in the gold market with a yellow metal trading between $1,680 and $1,750 until the end of June, when the price of gold jumped above the ceiling.

How can we judge the gold’s performance during the first half of the year and the global epidemic in particular? Well, on the one hand, gold bulls might be a bit disappointed. After all, one could expect that the most impactful pandemic since the Spanish flu of 1918, together with the unprecedented stock market crash, the deepest recession since the Great Depression, and the reintroduction of the ZIRP and quantitative easing would push gold prices much higher. The gain of 16 percent is great, but in the first half of 2016 gold gained even more.

On the other hand, gold performed much better than many other assets. Although its price declined in March, the drop was relatively mild compared to the stock market crash (see the chart below) or the collapse in oil prices. Gold is actually one of the biggest beneficiary of the coronavirus crisis, confirming its role as a safe-haven asset and portfolio diversifier.

We have to also remember about three important features of the recent crisis, which limited gains in the gold market. First, there was a fire sale to get cash – and during panic no assets are really safe. In the aftermath of the Lehman Brothers’ bankruptcy, the price of gold also declined initially. Moreover, in March 2020, the U.S. dollar appreciated significantly, which put downward pressure on the gold prices, as the chart below shows.

Second, the coronavirus recession was very deep, but also very short. It means that investors started quickly to expect a bottom and the following rebound, which weakened the safe-haven demand for gold. In other words, the coronavirus crisis was more like a natural disaster rather than financial crisis or recession triggered by fundamental factors (although the global economy slowed down even before the pandemic and the U.S. repo crisis showed that the American financial system is quite fragile).

Third, the Fed’s response was quick and very aggressive, much more radical than in the aftermath of the Great Recession. The U.S. central bank’s decisive actions and implementation of many liquidity measures and unconventional monetary policies (as well as Treasury and Congress’ actions) managed to quickly restore confidence in the marketplace, spurring the appetite for risky assets rather than safe havens.

OK. But what’s next for the gold market? Well, the key to this question might lie in the chart below. As one can see, there has been a strong negative correlation between the gold prices and real interest rates. In March, the panic was so great that investors were selling even Treasuries, which pushed the bond yields higher, and send the price of the yellow metal down.

Now, the real interest rates are at very low, negative level, which should support the gold prices. The record low was -0.87 percent, so there is still some potential for going negative, especially given the ultra dovish Fed’s monetary policy.

However, with yields at such low level, there might be limited room for further downward move. So, unless we see a high inflation (or a significant second wave of coronavirus infections, or a softening of the greenback, for example, because of the sovereign debt crisis), we won’t expect a significant rally in gold prices (or there might be ups and downs on the way). Actually, if the real interest rates rebound somewhat, the yellow metal may struggle.

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Arkadiusz Sieron, PhD
Sunshine Profits: Analysis. Care. Profits.

 

The Virus That Sent Crude Oil Prices on a Jolly Ride

COVID-19 changed global oil markets in Q1 and Q2 of 2020, sending crude oil prices on a jolly ride and disrupting global energy supply chains and oil traders.

Crude Oil began 2020 trading higher than $60 a barrel. Then came in COVID-19 the worst pandemic known to man, shutting down global demand for energy that the price of crude plunged below $0 for the first time in history. In Oil futures, contracts also went parabolic in late April due to a lack of available storage tanks to store crude oil thereby depressing the price of crude oil.

Though within several days crude oil prices rebounded, ending the first half of the year at $40 per barrel.

Crude Oil prices have rebounded in recent weeks with drivers returning to roads and suppliers curtailing production.

Behind the recent surge is the return of energy demand among major economies, as to loosen economic restriction and record production cuts by OPEC, allies including Russia.

As a result of these, there were many oil futures contracts outstanding to have oil delivered several months to the future date a rare market condition that has calmed oil traders ‘anxiety after April’s chaos.

America’s crude oil production also stuttered as energy companies were forced to close their productive wells, trend oil traders say could most certainly alter the shale boom that made the United States the world’s largest producer of gas and oil.

“However, rising cases of COVID-19 in some US states could keep oil prices in check and will most definitely temporary overly zealous bullish ambitions.

“From a trader’s perspective, there is always a concern when the data is too good; especially beneath the fog of the current Covid-19 headlines that suggest de-risking playbooks remain in play ahead of the US long weekend said Stephen Innes, Chief Global Market Strategist at AxiCorp.

For a look at all of today’s economic events, check out our economic calendar.

 

European Equities: A Month in Review – June 2020

The Majors

It was another bullish month for the European majors in June, as the markets continued to recover from The Meltdown.

The DAX30 and CAC40 rallied by 6.25% and 5.12% respectively to lead the way, with the EuroStoxx600 gaining 2.85%.

Themes throughout the month included the reopening of economies across the EU and the U.S and stimulus…

Central banks and governments stepped in to provide much-needed support, as the markets digested post lockdown economic indicators.

Late in the month, a threat of U.S tariffs on EU goods and a pause in the easing of lockdown measures tested risk sentiment.

In the U.S, news of U.S states hitting pause on reopening questioned the more optimistic outlook on the economic recovery.

It was not enough to sink the markets, however. Continued support from the FED and other central banks propped up the markets late in the month.

While June’s gains may seem minor, the 2nd quarter rebound was more impressive. The DAX30 rallied by 23.9%, with the CAC40 and EuroStoxx600 rising by 12.28% and 12.59% respectively.

Optimism coupled with monetary and fiscal policy support and the easing of lockdown measures fuelled the gains in the quarter.

The Stats

It was a busy month on the Eurozone economic calendar. June’s prelim private sector PMIs were the headline stats of the month, which led to a less gloomy economic outlook for the Eurozone.

Following an uptick in May, further improvement in June was key to the upside in the European majors.

Supporting the uptick in service sector activity was a pickup in both business and consumer confidence. For the economic recovery, consumer confidence and spending remained key to supporting a service sector-driven recovery.

From the U.S

Private sector PMIs reflected a similar trend, with both the manufacturing and services sectors seeing a slower pace of contraction. This was coupled with a rebound in durable and core durable goods orders.

While retail sales also bounced back from April’s, there was evidence, however, that labor market conditions would likely take longer to recover.

In spite of May’s nonfarm payrolls impressing at the start of the month, the weekly jobless claims continued to report high numbers.

From an economic and service sector perspective, however, improving consumer confidence was key. At the end of the month, June’s CB Consumer Confidence Index jumped from 85.9 to 98.1.

Monetary and Fiscal Policy

In the June monetary policy decision, the ECB left interest rate and deposit rates unchanged, which was in line with market expectations. The ECB did crank up the size of the emergency purchasing program of bonds to €1.35tn and extended it by an additional 6-months to 30th June 2021.

Outside of the monthly policy meeting, the ECB also delivered a Eurosystem repo facility for central banks outside of the Eurozone. The move provided further support to the European majors late in the month.

Perhaps the FED’s move to begin acquiring individual corporate bonds was most impressive in June. Mid-month, the FED announced that it would purchase up to $250bn in individual corporate bonds. Named the Secondary Market Corporate Credit Facility, eligible bonds had to be rated investment grade as at March 22nd, 2020.

The Market Movers

For the DAX: It was another mixed month for the auto sector. Continental fell by 2.17% to buck the trend in the month. BMW and Daimler rallied by 7.47% and by 7.67% respectively, while Volkswagen rose by 2.16%.

It was another bullish month for the banks. Deutsche Bank rallied by 11.74%, with Commerzbank up by 13.31%.

Deutsche Lufthansa rose by a more modest 7.79%.

From the CAC, it was a bullish month for the banking sector. BNP Paribas and Credit Agricole rose by 9.64% and by 7.80% respectively. Soc Gen rallied by 11.87%, however, to lead the way.

It was also a bullish month for the auto sector. Peugeot and Renault rallied by 13.04% and by 11.78% respectively.

Air France-KLM and Airbus SE had a mixed month. While Air France-KLM fell by 0.74%, Airbus SE rallied by 12.03%.

On the VIX Index

In June, COVID-19 and geopolitics provided some upside in the VIX following the pullback in May.

The VIX rose by 10.61% in June to bring to an end 2 consecutive months in the red. Partially reversing a 19.44% slide from May, the VIX ended the month at 30.43.

The VIX had seen 4 consecutive months in the green before the reversal began in April.

Across the U.S equity markets, the S&P500 rose by 1.84%, with the Dow and NASDAQ gaining 1.69% and 5.99% respectively.

FED support and plenty of fiscal stimulus delivered the upside. Late in the month, U.S states began hitting pause on reopening as new COVID-19 cases began to spike.

The Month Ahead

It’s another busy month ahead on the Eurozone economic calendar.

An upward trend in the private sector PMIs through to July would need to continue for the markets to find a further upside.

The markets would also need to see a further pickup in both business and consumer confidence to support consumption.

Consumers would need to see improved labor market conditions to fuel consumption and a service sector-driven economic recovery.

On the monetary policy front, the ECB will need to continue to assure the markets of further support. Brussels and EU member states will also need to be on the same page vis-à-vis distribution of funds to support COVID-19 stricken economies.

From elsewhere, we continue to expect stats from the U.S and China to also garner plenty of attention.

Geopolitics and COVID-19 will also remain in focus. In June, Trump looked to distract U.S voters, by threatening the EU with tariffs. There had also been the talk of the U.S – China trade agreement being “over”.

With Trump on the back foot, election wise, expect more of the same if not more in the month ahead. Politically, the U.S President couldn’t have got things more wrong in June. Racism also took center stage, with protests and riots gripping the U.S following the unlawful killing of Floyd George.

If that’s not enough to keep the markets busy, it’s also corporate earnings season…