Where Is Gold Going From Here?

Interpretation Of The Current Consolidation In Gold

My team and I see the recent lows in Gold as similar to the April/May 2009 consolidation after the Global Financial Crisis. Also similar to the January 2013 consolidation before an extended -34% price decline took place – ending in December 2015.

The primary difference between now and then is that the US Federal Reserve is currently initiating a new round of Quantitative Tightening (QT), raising rates, while battling Inflation. In both the previous examples, the US Federal Reserve was moving aggressively into Quantitative Easing, attempting to aid in the recovery of the US & the global economy.

It seems to me, that the underlying factors driving the price of Gold have drastically changed. All it would take for Gold to break into a new trend, up or down, would be to see some new catalyst or contagion event come to life.

Gold Weekly Chart

Gold weekly chart

Gold Establishes An New Momentum Base While USD Rallied +15.75%

The strength of Gold over the past 15+ months while combating the strength of the US Dollar has been impressive. I’ve shared my thoughts in many interviews over the past year suggesting Gold was in a consolidation range (moving downward) while still holding up impressively as the US Dollar continued to skyrocket higher.

Trends in the US Dollar and Gold, I believe, are directly related to underlying global economic factors. These factors are prompting a shift away from traditional Growth sectors and pushing traders to reconsider the safety of precious metals. Another factor is that the US Federal Reserve has been actively telegraphing rate increases for nearly 12+ months as Inflation started to surge in early 2021.

I see the extended consolidation in Gold over the past 15+ months, above $1700, as a new momentum base for the price – similar to what happened in 2009 and 2013. The next question is “will it break upward or downward?”.

US Dollar chart

As time progresses, we’ll have to see how the US Dollar and Gold react to the Long-Term Resistance area I’ve highlighted on the chart above.

Plan A vs. Plan B For Gold Throughout 2022

I like to consider trading to take high probability opportunities within confirmed/defined trends. The smartest move for Gold traders right now is to wait for any future price confirmation before trying to guess which direction Gold will move.

Plan A Plan B
Watch the $1775 level as critical support Watch the $1735 level as critical support
Consider the current bullish price trend as Neutral
if any daily close breaks below $1775
Consider the current bullish trend as continued
Bearish if any daily close breaks below $1680
If the price recovers above $1775 after moving lower,
adjust to a potential bullish price trend for gold.
If the price breaks to below $1735, do not attempt
to ‘bottom-pick’.

These Plan A and Plan B constructs are how I think of trading in general.  It is not worth trying to guess where the price may go or if I’m missing out on some opportunity.  Risking 5% or 10% of my capital on a guess is just not worth it to me. I could be wrong in my guess multiple times trying to chase an emotional belief that a bottom or top is setting up. This, in turn, could destroy 25% to 40% of my trading capital in the process.

If I’m patient and wait for the market price to confirm a trend, then I’ll be able to execute a high probability trade with limited risk.

Falling Back To Long-Term Technical Analysis As A Guide

I created this chart in early 2021 highlighting my cycle expectations for Gold over the next 3+ years. Throughout most of 2021 and into early 2022, I expected Gold to trend downward – reaching a low price near $1625 sometime near February-May 2022. The recent low in Gold on May 16, 2022, was $1785. Prior to that, Gold reached a low of $1676.70 on March 8, 2021.

Although my $1625 level has not been reached yet, I am eagerly waiting for the next phase of my prediction – the potential rally wave that should start in June 2022 or soon after. This next rally phase may target $2000~2050, then stall for many months before continuing to trend higher, targeting $2400+.

Patience is the key to all trading and long-term success. Knowing there are opportunities for very short-term trades every day is fantastic if that is your style. I prefer to trade longer-term swing trades, protecting my capital and trading the most efficient setups.

In my opinion, the best opportunity for Gold traders is to wait for price confirmation of my predicted cycles. Once this happens, then look for opportunities when we know Gold has exited this consolidation phase.

What Strategies Can Help You Navigate the Current Market Trends?

Learn how we use specific tools to help us understand price cycles, set-ups, and price target levels in various sectors to identify strategic entry and exit points for trades. Over the next 12 to 24+ months, we expect very large price swings in the US stock market and other asset classes across the globe. We believe the markets have begun to transition away from the continued central bank support rally phase and have started a revaluation phase as global traders attempt to identify the next big trends. Precious Metals will likely start to act as a proper hedge as caution and concern begin to drive traders/investors into Metals and other safe-havens.

Historically, bonds have served as one of these safe-havens. This is not proving to be the case this time around. So if bonds are off the table, what bond alternatives are there? How can they be deployed in a bond replacement strategy?

We invite you to join our group of active traders who invest conservatively together. They learn and profit from our three ETF Technical Trading Strategies which include a real estate ETF. We can help you protect and grow your wealth in any type of market condition. Click the following link to learn more: www.TheTechnicalTraders.com

Chris Vermeulen
Chief Market Strategist
Founder of TheTechnicalTraders.com

Elevated Volatility Observed Across Multiple Asset Classes in Early May

Inflation and Monetary Policy Across the Globe

As expected, the US Federal Reserve announced its largest interest rate hike since 2000 on Wednesday, raising its benchmark rate by half a percentage point in an attempt to step up its fight to combat spiralling inflation. Annual inflation in the US currently stands at an eye-watering 8.5 per cent, with the next release due on 11th may. Interestingly, according to Fed Chair Jerome Powell, multiple 50-basis point rate hikes are on the table for upcoming meetings.

Following suit was the Bank of England (BoE) on Thursday, raising its Bank Rate by a quarter of a percentage point from 0.75 per cent to 1.0 per cent, in a bid to tame rising inflation, its highest level in 13 years. Annual inflation in the UK clocked a 30-year high of 7 per cent in March, following February’s 6.2 per cent reading. The next release is due on 18th May.

Adding to market uncertainty is the ongoing conflict in Ukraine. Missiles landed in Kyiv last week at a time when Ukraine’s president hosted the UN secretary-general, while the European Union recently proposed a ban on Russian Crude oil by the end of 2022. Also ramping up uncertainty, of course, is the Covid situation in China. Adhering to a zero-Covid policy, the world’s second largest economy introduced lockdown measures across two of its biggest cities: Beijing and Shanghai.

Major Financial Markets Monthly Analysis

Equities

Major US equity benchmarks fell across the board in Q1. The Dow Jones finished south by 4.6 per cent, with the S&P 500 and Nasdaq Composite concluding the quarter underwater by an eye-watering 5.0 per cent and 9.1 per cent, respectively. US stocks also continued to tumble during April; the Nasdaq penciled in its worst month’s performance since 2008 in April and consequently entered bear market territory (-25 per cent from the high).

The technical framework on the daily timeframe out of the Nasdaq is interesting, exposing the likelihood of additional downside in May. Trend studies reveal a fresh low took shape after breaching the 12,555 trough (14th March 2022), with further underperformance probable until 11,400ish, composed of an AB=CD bullish pattern that’s accompanied by a 50.0% retracement at 11,433 (drawn from the low 6,631) and channel support, etched from the low 13,094. Adding to the bearish scenery is the relative strength index (RSI), visibly journeying south of its 50.00 centerline and indicator trendline support: negative momentum.

Should buyers regain consciousness, however, supply resides at 13,694-13,320, joined by channel support, extended from the high 15,852.

Foreign Exchange (Forex)

In the foreign exchange market, the US dollar has been on a tear. Against a basket of six international currencies, the US Dollar Index (USDX), a widely followed USD measure, added 5.0 per cent in April, its largest one-month gain since early 2015. The impressive run elevated the buck to a high of 103.93 in recent trading sessions, levels not visited since 2002.

Year to date, the index is higher by 8 per cent (chart below).

Europe’s shared currency traded lower by 2.4 per cent against its US counterpart in April, its largest one-month tumble since March 2020, movement that pulled EUR/USD (below) under the pandemic low of $1.0638 (March 2020). Technically speaking, the weekly timeframe’s Quasimodo supports between $1.0467 and $1.0517 have offered little to persuade buyers to commit. One factor likely discouraging any meaningful buying at current price is the downtrend, dominant since the beginning of 2021.

Adding to this, realised clearly from the monthly timeframe, the overall vibe has been to the downside since topping in April 2008. Territory beneath current weekly supports, therefore, calls attention towards the $1.0340 2nd January low (2017) in May.

Bonds

A relentless rise in US Treasury yields was seen across the curve in Q1, action boosting the US dollar. April saw the benchmark 10-year yield extend gains, with month-to-date action in May navigating waters beyond the widely watched 3.0 per cent mark—its highest level since late 2018.

Technical traders may want to acknowledge the weekly inverted head and shoulders pattern that’s poised to complete in May. The neckline breach, drawn from the high 1.968%, was engulfed in early 2022 and the 10-year yield has outperformed since. The pattern’s profit objective (applied by measuring the distance from the trough to the neckline which is then added to the neckline from the breakout point) is arranged at 3.242%.

Economic Data

06/05/2022: US Non-Farm Employment Change

11/05/2022: US Inflation and Core US Inflation (CPI) m/m

12/05/2022: US Producer Price Index (PPI) m/m

17/05/2022: RBA Monetary Policy Meeting Minutes

17/05/2022: US Retail Sales and Core Retail Sales m/m

18/05/2022: UK Inflation (CPI) y/y

18/05/2022: Canada Inflation (CPI) m/m

19/05/2022: Australia Employment Change Unemployment Rate

20/05/2022: German Flash Manufacturing and Services PMIs

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

Best Oversold ETFs to Buy Now for March 2022

When looking at Big Money ETF buys and sells below from MAPsignals.com, the deep red bars on the right side of the chart reflect the recent selling. In fact, this is the most ETF selling we’ve seen since the COVID-19 pandemic hit markets hard in March 2020:

Source: www.mapsignals.com

When markets move like this, the hysteria can entrap great assets and cause them to be sold off. To identify those “unfairly hit,” long-term investors need to look for ETFs (and their stocks) with great setups.

Remember: ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.

Let’s get to the five best oversold ETFs to buy for March 2022.

#1 Consumer Discretionary Select Sector SPDR Fund (XLY)

This ETF has been getting hammered this year. That isn’t surprising given the overall growth slide and other headwinds. XLY has been caught in the flood. But Big Money has been buying XLY in chunks over the last year:

Despite the recent decline, XLY holds several solid stocks. One example is its second-largest holding, Telsa Inc. (GOOGL). Here is the Big Money action on GOOGL since 2017 – look at that rise:

#2 Vanguard Information Technology ETF (VGT)

When there are unusually big sells on otherwise fundamentally strong ETFs, it’s usually a time to buy. That could be the case now with VGT. It holds some of the biggest, most successful tech stocks out there. Their ability to bounce back is appealing, as is the growth of VGT:

One great stock among the VGT top holdings is NVDIA Inc. (NVDA). It’s a long-time Big Money favorite with awesome fundamentals, as the multi-year Top 20 chart below shows:

#3 iShares U.S. Home Construction ETF (ITB)

If you want to ride the U.S. housing wave, ITB is a reliable vehicle. Big Money likes this construction ETF because it holds tremendous housing stocks. Given its quality, I think this could be a great opportunity to get a solid ETF at a discount price:

The largest holding within ITB is D.R. Horton, Inc. (DHI). It’s an outlier stock that has been a Top 20 Big Money buy many times since 2015:

#4 iShares Semiconductor ETF (SOXX)

Semiconductors are in pretty much everything modern humans use daily, and they’re in short supply right now, so demand should be strong for a while. SOXX is full of solid growth companies under selling pressure and could be an opportunity:

One company within this ETF that’s been uneven but could still flourish is Qualcomm Inc. (QCOM). Big Money loves it. The multi-year QCOM chart of Big Money activity says don’t bet against it:

#5 First Trust Cloud Computing ETF (SKYY)

This ETF has been dropping since November 2021, but it still has lots of potential. SKYY holds solid companies focused on a critical business need with big growth potential. So, it may still be an outlier.

One great stock in SKYY is Alphabet Inc. Class A (GOOGL), Google’s parent company. Like many tech stocks, it’s fallen back lately, but it still has a phenomenal long-term trend and is SKYY’s top holding. Looking at the Top 20 buys, it’s clear Big Money has loved GOOGL since it began trading:

Here’s a Big Money recap:

  • When Big Money buying pours in, stocks tend to go up
  • Red selling on great quality can be a tremendous opportunity
  • Repeated buying usually means outsized gains

Fair or not, all these ETFs have been hit hard this year due to their growth-oriented focus. But that doesn’t change the fact they hold great stocks that could rise in the future. That’s why I think these oversold ETFs represent great potential bargains.

The Bottom Line

XLY, VGT, ITB, SOXX, and SKYY are my best oversold ETFs to buy now for March 2022. These picks are poised to do well going forward, in my opinion, largely because they each hold great stocks. They may be experiencing selling pressure, but on quality assets, deep red days often prove to be fire sales over time.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: at the time of publication, the author holds no positions in XLY, VGT, ITB, SOXX, SKYY, TSLA, NVDA, or DHI, but does have long positions in QCOM and GOOGL in managed or personal accounts.

Investment Research Disclaimer

https://mapsignals.com/contact/

 

Best ETFs to Buy for March 2022

When there’s huge buying and selling in the market, it’s usually unsustainable and coincides with peaks and troughs, especially over the past two years. It reminds me of investor overexuberance. There’s just too much excitement (either of the buying or selling variety), for such movements to be anything that will last.

Chart, histogram Description automatically generated
Source: www.mapsignals.com

Opportunistic investors can take advantage of these movements, especially when there’s deep selling. Those times have proven to be when stocks and ETFs are on sale. When zooming in to the last three months (below), we see lots of unsustainable selling. This could set up well for some discount buying that may serve long-term investors well.

Chart Description automatically generated
Source: www.mapsignals.com

Given these conditions, we’ve identified some ETFs we think have long-term potential, a few of which are priced nicely right now: RDVY, QUAL, IGV, IHI, and FDN.

Long-term investors should look for ETFs (and their stocks), with great setups. Remember, ETFs are just baskets of stocks, so we need to look at them in detail. MAPsignals specializes in scoring more than 6,500 stocks daily. If I know which stocks compose the ETFs, I can apply stock scores to the ETFs. Then I can rank them all from strongest to weakest.

Let’s get to the five best ETF opportunities for March 2022.

#1 First Trust Rising Dividend Achievers ETF (RDVY)

This is a market rotation play as growth stocks are shed in favor of more predictable value-oriented companies that pay dividends. And while dividends are great and rising dividends are even better. RDVY holds some great companies that have histories of raising dividends. It’s likely why Big Money has been buying RDVY in chunks over the past year:

RDVY holds several solid stocks, including some big technology companies; one example is Activision Blizzard Inc. (ATVI), which has a 3-year EPS growth rate of 16.6%, but is still getting sold a lot. Here are Big Money signals for ATVI:

#2 iShares MSCI USA Quality Factor ETF (QUAL)

This one is all about quality. QUAL holds a basket of stocks with excellent fundamentals, many of which are household names. So, it’s not surprising that an ETF all about quality has performed well over the past few years. There were dips around October and February (red bars), but big dips have typically preceded big rises in this ETF:

One great stock QUAL holds is Nike, Inc. Class B (NKE). It’s a long-time Big Money favorite with fantastic fundamentals (3-year EPS growth of 67.2%). As the multi-year chart below shows, it’s been a growing giant for a while:

#3 iShares Expanded Tech-Software Sector ETF (IGV)

This high-flying ETF has seen Big Money buys for a long time, and it’s performed well. It holds some phenomenal stocks, many of which are outliers – the kind that of stocks that produce HUGE gains. But with the recent pullbacks, IGV can be considered a discount buy right now:

One of many big winners within IGV is Adobe Inc. (ADBE). It’s an outlier stock – it’s 3-year sales growth is an impressive 20.8% – and has been a Top 20 Big Money buy for years:

#4 iShares U.S. Medical Devices ETF (IHI)

This one is another on our hunt for bargains. By identifying weaker ETFs holding stocks with strong fundamentals, we can buy in a good spot. IHI was destroyed in January 2022, but not long before that was at peaks, likely because its stocks are phenomenal and medical devices markets remain strong:

One standout within this ETF is Thermo Fisher Scientific Inc. (TMO), a giant healthcare company high huge earnings growth (3-year EPS growth of 40.8%). The multi-year chart below shows lots of Big Money buying. And notice how sells appear to be discounts:

#5 First Trust Dow Jones Internet Index Fund (FDN)

This is another “bargain bin” pick, but that’s because this ETF is getting killed recently (unfairly in my opinion). FDN has seen Big Money buying in the past, but it’s dropped significant value since around last Still, it holds fantastic technology stocks, which makes the current price appetizing:

One great stock in FDN is Amazon.com Inc. (AMZN). It’s been stagnant lately, but Big Money has leaned on AMZN for a long time. Given the firm’s ubiquitous nature, growth vision, and huge performance (26.6% 3-year sales growth and 50% 3-year EPS growth). It wouldn’t surprise to see this one rise high again:

Here’s a Big Money recap:

  • When Big Money buying pours in, stocks tend to go up
  • Red selling on great quality can be a great opportunity
  • Repeated buying usually means outsized gains

Let’s summarize here:

Chart Description automatically generated with low confidence

RDVY and QUAL rank high. IGV, IHI, and FDN, however, rank lower on our list, due to weaker technicals. That’s why I think these weaker ETFs represent great potential bargains.

The Bottom Line

RDVY, QUAL, IGV, IHI, and FDN are my top ETFs for March 2022. These picks can rise higher, in my opinion, largely because they each hold great stocks. Some of them are discounted right now because of selling pressures. But as we know, deep red days often prove to be big opportunities over time.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds no positions in RDVY, QUAL, IGV, IHI, FDN, ATVI, ADBE, TMO, or AMZN in managed or personal accounts at the time of publication; he holds long positions in NKE in managed accounts.

Investment Research Disclaimer

https://mapsignals.com/contact/

 

European Equities: A Month in Review – November 2021

The Majors

It was a bearish November for the European majors, which partially reversed October’s rebound from a bearish end to the 3rd quarter.

The EuroStoxx600 and the CAC40 fell by 2.64% and by 1.60% respectively, with the DAX30 ending the month down by 3.75%.

A pickup in new COVID-19 cases across the EU and government responses to curb the spread going into the winter months tested support late in the month. At the end of the month, however, the emergence of the new strain and spread of Omicron weighed heavily.

Comments from Moderna CEO of a likely marked fall in vaccine efficacy against the latest strain also weighed heavily on riskier assets.

On the monetary policy front, while the ECB continued to stand by its view on inflation, there was more hawkish chatter from the U.S. FED Chair Powell delivered hawkish testimony at the end of the month, talking of the need to discuss speeding up the tapering to the bond purchases. Powell also suggested that the FED should shift from referencing inflation as transitory.

Powell’s testimony followed a pullback in the equity markets in response to his reappointment as FED chair earlier in the month.

Economic data took a back seat in the month, in spite of better-than-expected numbers from China. For the Eurozone, a further pickup in inflation didn’t help late in the month.

The Stats

Prelim November private sector PMIs for France, Germany, and the Eurozone were market positive. In November, the Eurozone’s composite PMI rose from 54.2 to 55.8, easing concerns of any slowdown in the economic recovery. Cost pressures and supply chain issues remained a hindrance midway through the final quarter, however.

More significantly, were weaker business and consumer sentiment figures in response to inflation and COVID-19.

Germany’s Ifo Business Climate Index fell from 97.7 to 96.5 in November, with Germany’s GfK Consumer Climate Indicator falling from 1.0 to -1.6.

For the Eurozone, there was a similar trend, with the consumer confidence index falling from -4.8 to -6.8.

On the inflation front, the Eurozone’s annual rate of inflation accelerated from 4.1% to 4.9% in November, adding to the market angst in the month.

From the U.S

Economic data was upbeat, supporting a more hawkish FED Chair.

Labor Market Numbers

Nonfarm payroll and weekly jobless claims were positives in the month.

In October, nonfarm payrolls jumped by 604k, with initial jobless claims falling back to sub-200k levels for the first time since the start of the pandemic.

Consumption and Consumer Confidence

In spite of improving labor market conditions, consumer confidence waned, however. In November, the CB Consumer Confidence Index fell from 111.6 to 109.5

This was accompanied by a fall in the Michigan Consumer Sentiment Index from 71.7 to 66.8 in November.

In spite of the pickup in consumer prices, retail sales figures were upbeat, however.

Core retail sales increased by 1.7% in October, with retail sales also rising by 1.7% in the month.

Service Sector Activity

The all-important services sector saw a moderate slowdown in activity mid-way through the quarter. In November, the Markit Services PMI fell from 58.7 to 57.0. The decline was not enough to raise any major red flags, however.

In October, the market’s preferred ISM Non-Manufacturing PMI had surged from 61.9 to 66.7…

Inflation

There was no respite on the inflation front. In October, the U.S core annual rate of inflation accelerated from 4.0% to 4.6%.

The FED’s preferred core PCE price index figures revealed a similar trend, with the index rising by 4.1% in October, year-on-year. In September, the index had been up by 3.7%.

Economic Growth

GDP numbers for the U.S failed to impress. In the 3rd quarter, the economy expanded by 2.1% falling short of expectations. The economy had expanded by 6.7% in the previous quarter.

Monetary Policy

For the ECB, no major surprises in the month, with ECB President Lagarde standing by the transitionary view on inflation.

It was a different story for the FED, however. While the minutes delivered largely what the markets had anticipated, FED Chair Powell caught the markets off-guard at the end of the month.

Hawkish chatter in relation to the tapering of bond purchases and inflation weighed heavily on riskier assets.

The Market Movers

For the DAX: It was a bearish month for the auto sector in November. Volkswagen tumbled by 16.16% to lead the way down. Continental also struggled, sliding by 6.58%, with BMW and Daimler falling by 2.48% and by 2.75% respectively.

It was also a bearish month for the banks. Deutsche Bank and Commerzbank ended the month with losses of 3.90% and 1.27% respectively.

From the CAC, it was a bearish month for the banking sector. Credit Agricole slid by 7.44%, with BNP Paribas and Soc Gen ending the month down by 4.87% and 4.44% respectively.

Things were no better for the auto sector. Renault slid by 8.37%, with Stellantis NV tumbling by 13.03%.

Air France-KLM and Airbus SE slumped by 9.71% and by 10.74% respectively.

On the VIX Index

It was a back into the green for the VIX in November, marking just a 4th monthly loss in 11-months.

Reversing a 29.73% rise from October, the VIX surged by 67.22% to end the month at 27.19.

In November, the Dow slid by 3.73%, with S&P500 ending the month down by 0.83%. The NASDAQ bucked the trend, however, rising by 0.25%.

VIX 301121 Monthly Chart

The Month Ahead

Following another pickup in inflationary pressures, the markets will be looking for any adverse impact on consumption. ECB central bank chatter, following the FED Chair’s move away from transitory, will be particularly key ahead of monetary policy decisions.

On the economic data front, consumer spending and private sector PMIs will be key areas of focus alongside consumer and business confidence.

While economic data from the Eurozone will influence, COVID-19 news will also be a key driver in the month. The markets will be looking for updates on vaccine efficacy against the Omicron strain and the timing of effective vaccine rollouts in response to the new strain, should vaccine resilience be materially lower.

Expect any further lockdown measures to combat the spread of COVID-19 in the winter months to also test support.

European Equities: A Month in Review – October 2021

The Majors

It was a bullish start to the 4th quarter, with the majors resuming their upward trend following September’s pullback.

The EuroStoxx600 and the CAC40 rallied by 4.55% and by 4.76% respectively, with the DAX30 ending the month up by 2.81%.

In spite of a further pickup in inflationary pressure, economic data and monetary policy sentiment continued to deliver support.

At the end of the month, the ECB reaffirmed its views on inflation being transitory, delivering the majors with strong support.

Weak GDP numbers from China and the U.S and Evergrande’s debt woes were market negative.

Away from the economic calendar, upbeat sentiment towards corporate earnings offset the negative influences from China, however.

The Stats

Key stats in the month included private sector PMIs for September, prelim inflation figures for October, and 3rd quarter GDP numbers.

Both data sets continued to suggest that inflationary pressures were more than just transitory.

In September, Germany’s Manufacturing PMI slipped from 58.5 to 58.4, with France’s Manufacturing PMI falling from 55.2 to 55.0.

As a result, the Eurozone’s Manufacturing PMI slipped from 58.7 to 58.6.

While manufacturing sector growth held steady, service sector growth slowed in September.

The Eurozone’s Services PMI fell from 59.0 to 56.4, leading to a fall in the Composite from 59.0 to 56.2.

On the inflation front, the Eurozone’s annual rate of inflation accelerated from 3.4% to 4.1% in October, according to prelim figures.

At the end of the month, 3rd quarter GDP numbers for member states and the Eurozone delivered mixed results.

In the 3rd quarter, the Eurozone economy grew by 2.2% quarter-on-quarter. The economy had expanded by 2.1% in the 2nd quarter. Year-on-year, the economy expanded by 3.7%.

According to Eurostat,

Among member states, with data available for the 3rd quarter:

  • Austria (+3.3%) recorded the highest increase, quarter-on-quarter, followed by France (+3.0%) and Portugal (+2.9%).
  • Latvia (+0.3%) and Lithuania (+0.0%) recorded the lowest GDPs.

From the U.S

Economic data also delivered mixed signals.

Labor Market Numbers

Nonfarm payrolls saw a modest 194k increase in September after having risen by 366k in August. While on the lower side, the U.S unemployment rate fell from 5.2% to 4.8% in the month of September.

Weekly jobless claims were upbeat, however. After having failed to fall back to sub-300k levels since the start of the pandemic. Initial jobless claims fell to 280k in the week ending 22nd October. It was a 3rd consecutive week that claims remained below the 300k mark,

Consumption and Consumer Confidence

Retail sales continued to deliver support, rising unexpectedly in September.

In spite of the continued uptick in consumer prices, consumer confidence also improved. The CB Consumer Confidence Index rose from 109.8 to 113.8 in October.

Service Sector Activity

While concerns over the pace of the economic recovery lingered, service sector activity picked up at the end of the 3rd quarter.

The market’s preferred ISM Non-Manufacturing PMI rose from 61.7 to 61.9 in September.

Inflation

Concerns over inflation remained justified at the end of the quarter, however.

In September, the annual core rate of inflation held steady at 4.0%, with core consumer prices rising by 0.2% in the month.

The FED’s preferred Core PCE Price Index also continued to overshoot the FED’s 2% target, rising by 3.0% year-on-year.

Economic Growth

Disappointing economic data did muddy the monetary policy waters late in the month, however.

In the 3rd quarter, the U.S economy expanded by just 2% after having grown by 6.7% in the previous quarter.

Monetary Policy

The ECB stood pat on monetary policy in October. With inflationary pressures building further, the markets were looking for any shift on interest rate policy.

ECB President Lagarde quashed any expectations of a need to lift interest rates by reaffirming the view that inflation remains transitory.

For the FED, the tapering of the asset purchasing program remained firmly in place, while the FOMC hawks talked of a need to begin lifting interest rates.

Economic data in the month, however, suggested that the FED would need to juggle persistent inflation amidst slower growth.

The Market Movers

For the DAX: It was a mixed month for the auto sector in October. Volkswagen fell by 0.60% to buck the trend in the month. Daimler rallied by 10.74%, however, with BMW and Continental rising by 4.81% and by 7.19% respectively.

It was a bullish month for the banks. Deutsche Bank rose by 0.59%, with Commerzbank ending the month up by 9.72%.

From the CAC, it was a bullish month for the banking sector. BNP Paribas rose by 4.44%, with Credit Agricole and Soc Gen seeing gains of 9.12% and 6.03% respectively.

It was also a bullish month for the auto sector. Renault and Stellantis NV ended the month up by 0.52% and by 5.20% respectively.

Air France-KLM and Airbus SE fell by 3.85% and by 3.91% respectively.

On the VIX Index

It was a back into the red for the VIX in October, marking a 7th monthly loss in 10-months.

Partially reversing a 40.41% surge from September, the VIX fell by 29.73% to end the month at 16.26.

In August, the Dow rose by 5.84%, with the NASDAQ and the S&P500 ending the month up by 7.27% and by 6.91% respectively.

VIX 301021 Monthly Chart

The Month Ahead

With concerns over the growth outlook and monetary policy continuing to drive the markets, sensitivity to the economic data will remain heightened.

GDP, labor market numbers, private sector PMIs, consumption, and inflation will remain key areas of focus.

From the U.S, another jump in nonfarm payrolls and persistent inflation would support a more hawkish outlook on policy.

A pickup in service sector activity and upward revisions to 3rd quarter GDP numbers would be needed, however.

On the inflation front, expect a further pickup in inflationary pressures across key economies to test support for the majors.

Economic data from China will also be key, with the markets looking for manufacturing sector activity to gather pace.

With the holiday season rapidly approaching, the markets will be looking for supply chain issues to improve to support consumption and ease inflationary pressure.

Away from the economic calendar, corporate earnings will remain a key driver along with commodity prices.

At the start of the month, FED monetary policy will set the tone along with private sector PMIs from China, the Eurozone, and the U.S.

European Equities: A Month in Review – September 2021

The Majors

It was a choppy end to the 3rd quarter for the European majors, which saw a 7-month winning streak come to an end.

The EuroStoxx600 and the DAX30 slid by 3.19% and by 3.63% respectively, with the CAC40 ending the month down by 2.40%.

While economic data continued to influence, monetary policy, Evergrande, concerns over China, and the threat of a U.S government shutdown weighed on riskier assets.

A jump in U.S Treasury yields late in the month led to a Dollar rally and also a tech stock sell-off, adding heavy downside pressure.

The sell-off in the month was severe enough for dip-buyers to remain on the side-lines and let the end of the quarter come to an end.

The Stats

It was a mixed set of numbers for the markets in September. Consumer and business sentiment waned as COVID-19 continued to impact the economic recovery.

Private sector activity also reflected slower growth, while inflationary pressures continued to spike.

Private Sector PMIs

Growth across the private sector did slow at the end of the 3rd quarter, according to prelim figures, however.

The Eurozone’s Composite PMI fell from 59.0 to 56.1, with slower growth in both the manufacturing and services sectors contributing.

In September, the Eurozone’s Services PMI fell from 59.0 to 56.3, with the Manufacturing PMI declining from 61.4 to 58.7.

Both Germany and France reported slower growth, with Germany’s Manufacturing PMI falling from 62.6 to 58.5.

2nd Quarter Growth

Economic activity in the 2nd quarter fared better than had been expected, however. Quarter-on-quarter, the Eurozone economy expanded by 2.2%, which was up from a previous estimate of 2.0%.

Inflation

In August, inflationary pressures were on the rise once more. The Eurozone’s annual rate of inflation accelerated from 2.2% to 3.0%, overshooting the ECB’s 2% objective.

Supply chain issues continued to push prices higher as prices for raw materials spiked.

Business and Consumer Sentiment

Germany’s IFO Business Climate Index fell from 99.6 to 98.8 in September, with the Eurozone’s ZEW Economic Sentiment Index sliding from 42.7 to 31.1 in September.

A pick up in German consumer confidence provided little comfort, in spite of the GfK Consumer Climate Indicator rising from -1.40 to +0.30.

From the U.S

Economic data also delivered mixed signals.

Labor Market Numbers

Nonfarm payrolls saw a more modest 235k increase in September after having jumped by 1,053k in August.

Weekly jobless claims were also disappointing. After having fallen to a pandemic low of 310k early in the month, claims jumped back to 362k in the week ending 24th September.

Consumption and Consumer Confidence

Retail sales impressed, however, in spite of weakening consumer confidence. In August, core retail sales jumped by 1.8%, with retail sales up 0.7%. Consumer spending had fallen back in July.

The all-important CB Consumer Confidence Survey raised some red flags, however. In September, the CB Consumer Confidence Index fell from 115.2 to 109.3.

Service Sector Activity

While reflecting softer growth, service sector activity remained resilient mid-way through the quarter. The market’s preferred ISM Non-Manufacturing PMI slipped from 64.1 to 61.7 in August.

Inflation

There was no respite from inflationary pressures, however. In August, the annual core rate of inflation softened from 4.3% to 4.0%. While softer, inflationary pressures remained elevated, supporting the need for policy action by the FED.

Monetary Policy

While the ECB continued to talk of inflationary pressures being transitory, the FED delivered a more hawkish outlook on policy.

The markets had been looking for a definitive date on which the FED would beginning tapering its asset purchasing program.

While failing to commit to a date, the interest rate projections highlighted a divided Committee, with some committee members pointing to rate hikes as early as next year.

Sentiment towards the economy and labor market conditions, coupled persistent inflation supported the more hawkish outlook.

The Market Movers

For the DAX: It was a mixed month for the auto sector in September. Continental tumbled by 16.54% to lead the way down, with Volkswagen sliding by 3.05%. BMW and Daimler found support, however, rising by 3.53% and by 8.47% respectively.

It was a bullish month for the banks. Deutsche Bank and Commerzbank ended the month up by 5.58% and by 8.47% respectively.

From the CAC, it was a mixed month for the banking sector. BNP Paribas and Soc Gen rose by 3.18% and by 2.03% respectively. Credit Agricole bucked the trend, however, falling by 2.13%.

It was a bearish month for the auto sector. Renault and Stellantis NV ended the month down by 1.75% and by 3.28% respectively.

Air France-KLM rallied by 7.30%, while Airbus SE slipped by 0.52%.

On the VIX Index

It was a back into the green for the VIX in September, marking just the 2nd monthly gain in 8-months.

Reversing a 9.65% fall from August, the VIX surged by 40.41% to end the month at 23.14.

In August, the NASDAQ slid by 5.31%, with the Dow and the S&P500 ending the month down by 4.28% and by 4.76% respectively.

VIX 011021 Monthly Chart

The Month Ahead

With market concerns over the growth outlook and monetary policy now driving the markets, sensitivity to the economic data will likely be heightened.

Labor market numbers, private sector PMIs, consumption, and inflation will remain key areas of focus.

From the U.S, another jump in nonfarm payrolls and persistent inflation would support the more hawkish outlook on policy.

Also of influence, however, will be economic data from China, with any further weak data sets likely to test support for the majors.

Away from the economic calendar, COVID-19 and geopolitics will be other areas of focus in the final quarter of the year.

Gold Forecast – Gold Signals Potential Bottom Over Dismal August Jobs Report

The August employment report came in at just 235,000 jobs versus the expected 730,000 by economists. Gold jumped over the potential for a weakening economy and delayed Fed tapering. A sustained breakout above $1840 in September would be considered bullish.

GOLD FORECAST

GOLD LONG-TERM (MONTHLY): If we are in a similar circumstance to 2004, then a breakout above $2000 in 2022 would support a long-term target between $7500 or $9500 by 2028 to 2032.

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GOLD 4-HOUR CHART: Gold (currently $1824.50) jumped after the dismal employment report showing just 235,000 jobs created in August. To support a bullish breakout, prices would have to clear the $1840 area followed by the downtrend line currently near $1880. Dropping back below $1800 in September would promote more consolidation.

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GOLD MINERS (GDX) UPDATE

GDX DAILY (15-MONTH) CHART: If GDX stays above $33.00 in September, I see the potential for a Double Bottom (March/August 2021). An advance above $40.00 would confirm a bullish breakout and support new highs in 2022.

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GDX DAILY CLOSE-UP: Ending the week above $33.00 would be bullish. However, stiff resistance lies just ahead at $34.25 and then again near $37.00. Sustained upside may prove difficult without a significant increase in investment demand. I think as confidence wanes, gold should begin to respond positively.

On the Downside: Closing below today’s $32.50 gap anytime next week would be bearish and could trigger additional downside.

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COVID UPDATE

Our work continues to support an increase in Covid related infections (Delta Variant) into year-end 2021. If the 2020 pattern repeats – Covid should reemerge in the Mid-West (US) starting in September or October.

ISRAEL COVID DATA

Israel has over 60% of its population fully vaccinated, and daily cases are surging. The Delta variant is highly transmissible, and there have been multiple breakthrough cases. The death rate has remained low, but this is still very concerning.

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US DAILY CASES

Daily cases in the US are slowly rolling over just below the 200,000 level. It’s important to note that these cases are primarily in the southern states, including Florida and Texas. The trend is setting up for record cases into year-end that could reach over 400,000 per day, in my opinion.

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SUPPLY DISRUPTION or QUIET PANIC

Maybe it’s the slowly recovering supply chain, but I’m starting to see shortages (some limits) on basic supplies and bottled water in my area. Also, more people are choosing to wear masks in public. It could be nothing, but on the surface, it feels like the beginning of supply hoarding or perhaps a quiet-panic brewing beneath the surface.

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 – August 2021

The Majors

It was yet another bullish month for the European majors in August, logging a 7th consecutive monthly gain.

The DAX30 and the EuroStoxx600 rose by 1.87% and by 1.98% respectively, with the CAC40 trailing once more with a 1.02% gain.

It was another choppy month for the European majors, with economic data, FED monetary policy, and COVID-19 key areas of focus.

While economic data was mixed in the month, from the U.S and the Eurozone, the numbers were good enough to avoid a sell-off.

Market jitters over FED monetary policy tested support ahead of the Jackson Hole Symposium late in the month. FED Chair Powell’s assurances that tapering did not constitute tightening was good enough for the markets in August.

On the negative, however, was the continued spread of the Delta variant, which raised concerns over the economic recovery.

The Stats

Key stats in the month included inflation, consumer spending, consumer sentiment, private sector PMIs and 2nd quarter GDP numbers.

Private Sector PMIs

Private sector PMIs for August were better than expected easing concerns over a material slowdown in economic growth.

For the Eurozone, the Manufacturing PMI fell from 62.8 to 61.5, while the services PMI slipped from 59.8 to 59.7.

Both France and Germany saw slower growth across the manufacturing and the services sectors. For Germany, the manufacturing PMI slipped from 65.9 to 62.7. Avoiding a PMI of sub-60 was key.

2nd Quarter Growth

GDP numbers for France and Germany were in focus in the month, with the numbers beating expectations.

For Germany, the economy grew by 1.6% in the 2nd quarter versus a forecasted 1.5%. The economy had contracted by 1.8% in the quarter prior.

Quarter-on-quarter, the French economy expanded by 1.1%, coming in ahead of a forecasted 0.9%. In the previous quarter, the economy had stalled.

For the Eurozone, 2nd estimate GDP numbers were also market positive in spite of a modest downward revision from the 1st estimate. In the 2nd quarter, the Eurozone economy expanded by 2.0%, quarter-on-quarter, which was in line with prelim numbers.

Year-on-year, however, the economy expanded by 13.6%, revised down from a 1st estimate 13.7%. In the 1st quarter, the economy had contracted by 1.3%.

Inflation

With the ECB in action next week, inflation figures for August also drew plenty of attention. The markets were looking for any further pickup in inflationary pressure that could question the ECB’s transitory view.

For the Eurozone, the annual rate of inflation accelerated from 2.2% to 3.0%. The core annual rate of inflation picked up from 0.7% to 1.6%.

Business and Consumer Sentiment

For the markets, a deterioration in business and consumer sentiment was palatable, as a result of the Delta variant.

Germany and the Eurozone saw business and consumer confidence wane in the 3rd quarter.

From Germany, the GfK Consumer Climate Indicator fell from -0.3 to -1.2 in August. The all-important Ifo Business Climate Index declined from 100.7 to 99.4.

For the Eurozone, consumer confidence fell from -4.4 to-5.3 in August, with the business climate index falling from 1.88 to 1.75.

From the U.S

Economic data delivered mixed results once more.

Labor market numbers impressed, with nonfarm payrolls surging by a further 943k in July. In June, nonfarm payrolls had jumped by 938k.

Jobless claims failed to fall below the 300k mark in the month, however, in spite of the NFP numbers.

Private sector PMI numbers also impressed.

The all-important ISM Non-Manufacturing PMI rose from 60.1 to 64.1 in July, supporting the optimistic economic outlook.

Manufacturing sector saw slower growth, but only modestly, with the PMI falling from 60.6 to 59.6.

On the consumption front, retail sales figures were weak, with retail sales falling by 1.1% in July. In June, retail sales had risen by 0.7%.

The figures coincided with weaker consumer sentiment driven by the Delta variant.

In August, the Michigan Consumer Expectations Index fell from 79.0 to 70.3, with the expectations index sliding from 81.2 to 65.1.

The markets preferred CB Consumer Confidence also showed weakness. In August, the consumer confidence index fell from 129.1 to 113.8. Economists had forecast a more modest decline to 124.0.

On the inflation front, the annual rate of inflation softened from 4.5% to 4.3% in July, easing concerns over a further build up. The FED’s preferred Core PCE Price Index was up 3.6%, year-on-year, the rate of inflation unchanged from June. This was also a positive for riskier assets. From a market perspective, softer numbers are going to be needed near-term, however, to further support the FED’s transitory outlook.

The Market Movers

For the DAX: It was a bearish month for the auto sector in August. Daimler slid by 5.41%, with BMW and Volkswagen down by 4.30% and by 2.52% respectively. Continental ended the month with a more modest 0.87% loss.

It was also a bearish month for the banks. Deutsche Bank fell by 1.82%, with Commerzbank declining by 2.39%.

From the CAC, it was a bullish month for the banking sector. BNP Paribas and Credit Agricole rose by 4.43% and by 3.83% respectively. Soc Gen led the way, however, rallying by 7.76%.

It was a mixed month for the auto sector. Renault fell by 1.81%, while Stellantis NV ended the month up by 4.71%.

Air France-KLM avoided the red, rising by 0.66%, while Airbus SE ended the month flat.

On the VIX Index

It was a back into the red for the VIX in August, marking a 6th monthly decline in 7-months.

Partially reversing a 15.22% rise from July, the VIX fell by 9.65% to end the month at 16.48.

In August, the NASDAQ rallied by 4.00%, with the Dow and the S&P500 ending the month up by 1.22% and by 2.90% respectively.

VIX 010921 Monthly Chart

The Month Ahead

The usual data sets will need continued monitoring. With progress made on the vaccination front, however, the markets will be looking for a pickup in business and consumer confidence.

Inflation numbers will also need to soften to support the transitory view shared by both the ECB and the FOMC.

Following some mixed numbers from China of late, economic data will also need to resume an upward trend to ease any concerns over growth.

Away from the economic calendar, COVID-19 news will need monitoring. As new cases continued to rise in August, the threat of a vaccine resilient variant remains.

GOLD FORECAST – Gold Prices Must Hold $1675 to Prevent a Breakdown

The intermediate cycle in gold (chart below) has formed turning points roughly every 128-calendar days (4.2-months). That cycle just turned again, triggering an intermediate low on August 9, 2021. Gold must now stay above that low to prevent a breakdown to the $1500 to $1550 area.

I’m long-term bullish on gold and believe the current correction is just a pause in a new bull market that should last into 2030.

KEY PRICE LEVELS

  • A sustained breakdown (more than a week) below $1670 would invite a retest of long-term support between $1500 and $1550.
  • Whereas a breakout above $1850 is needed to support the next leg higher in precious metals.

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The next cycle turning point (high or low) should arrive by mid-December 2021.

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 – July 2021

The Majors

It was another bullish month for the European majors in July, logging a 6th consecutive monthly gain.

The CAC40 and the EuroStoxx600 rose by 1.61% and by 1.97% respectively, while the DAX30 struggled, rising by just 0.09%.

It was a choppier month for the European majors. Concerns over the resilience of the economic recovery tested support for the majors at the start of the 3rd quarter of the year.

A continued rise in new COVID-19 cases across the world added to the market angst in the month.

Economic data from Germany was also disappointing, pegging the DAX30 back.

Central bank assurance of support, dip buying, corporate earnings, and economic data for France and the Eurozone delivered support, however.

The Stats

Key stats in the month included inflation, consumer spending, consumer sentiment, private sector PMIs, and 2nd quarter GDP numbers.

Once more, the stats were skewed to the positive, delivering support to the broader market.

The Private Sector

The Eurozone’s composite PMI rose from 59.5 to 60.6 in July, according to prelim numbers. Service sector activity picked up, delivering the upside at composite level.

Germany’s Manufacturing PMI increased from 65.1 to 65.6, which was key as private sector activity across France saw slower growth.

As a result of weak numbers from France, the Eurozone’s Manufacturing PMI fell from 63.4 to 62.6.

The German Economy

From Germany, while survey-based numbers were upbeat, non-survey-based data disappointed in the month.

Factory orders (-3.7%) and industrial production (-0.30%) were weak, with Germany’s trade surplus narrowing from 15.9bn to 12.6bn EUR.

German business and consumer confidence also failed to impress in spite of the reopening of the economy. Rising cases of the Delta variant across the world raised uncertainties over the economic outlook in the month.

Late in the month, 1st estimate GDP numbers for the 2nd quarter were also in focus.

The German economy expanded by 1.5%, quarter-on-quarter, partially reversing a 2.1% contraction from the previous quarter. Economists had forecast 1.9% growth.

A positive in the week, however, was a fall in the unemployment rate from 5.9% to 5.7%, which should support consumption.

The Eurozone

For the Eurozone, the economy expanded by 2.00% in the 2nd quarter, reversing a 0.3% contraction from the previous quarter.

The numbers were aligned with the ECB’s optimistic outlook on the economic recovery.

Inflation

In the month, the ECB also revised its price stability target, increasing the inflation target to 2.0%. The move was viewed as dovish, giving the ECB more legroom before having to make a move on the policy front.

In spite of this, the Eurozone’s annual rate of inflation accelerated from 1.9% to 2.2% in July, according to prelim figures.

From the U.S

Economic data delivered mixed results for the markets.

Inflationary pressures continued to build, though following assurances from the FED, failed to spook the markets.

The market’s preferred ISM private sector PMIs for June were disappointing for June, which raised concerns over the economic recovery.

Weekly jobless claim figures also failed to impress, with claims falling to a month low 360k before climbing to a high 419k.

In the final week of the month, consumer confidence and 2nd quarter GDP numbers delivered mixed results.

Consumer confidence picked up in July, suggesting a further increase in consumption. In June, retail sales had risen by a modest 0.5%. On the economic growth front, however, the U.S economy grew by just 6.5% in the quarter, falling well short of a forecasted 8.5%.

Monetary Policy

In July, both the ECB and the FED left monetary policy unchanged. Both central banks delivered assurances of unwavering support, ultimately propping up the European majors in the month.

The Market Movers

For the DAX: It was a bearish month for the auto sector in June. Continental and BMW slid by 7.88% and by 6.09% respectively. Daimler and Volkswagen ended the month down by 0.44% and by 2.49% respectively.

It was also a bearish month for the banks. Deutsche Bank fell by 2.86%, with Commerzbank sliding by 9.03%.

From the CAC, it was a bearish month for the banking sector. BNP Paribas fell by 2.69%, with Credit Agricole and Soc Gen seeing losses of 0.42% and 0.52% respectively.

It was also a bearish month for the auto sector. Renault slid by 6.02%, with Stellantis NV ending the month down by 2.20%.

Air France-KLM fell by a further 3.71%, while Airbus SE rallied by 6.69%.

On the VIX Index

It was a first monthly gain in 6-months for the VIX in July.

Reversing a 5.55% loss from June, the VIX rose by 15.22% to end the month at 18.24.

In July, the S&P500 rallied by 2.27%, with the Dow and the NASDAQ ending the month up by 1.25% and by 1.16% respectively.

VIX 310721 Monthly Chart

The Month Ahead

Following some mixed numbers from Germany, we can expect increased sensitivity to the German numbers in the month ahead.

Private sector PMIs will also remain key, with any fall back in private sector PMIs likely to test support for the majors.

Following the latest spike in inflation, a further pickup in inflationary pressure will also raise questions over consumption. As a key component of the economic recovery, any concerns over consumption would also pressure the majors.

From the U.S, labor market numbers will now be the key area of focus as inflationary pressures continue to pick up.

Consumer confidence and consumption numbers will need to impress to support riskier assets.

From elsewhere, private sector PMIs and trade data from China will also need tracking.

Away from the economic calendar, COVID-19 news will also need monitoring. As new cases continued to rise in July, the threat of a vaccine resilient variant remains, which would materially impact the growth outlook.

Gold Forecast – Must Hold Bullish & Bearish Price Levels for Gold and Miners

Red Flag or Shakeout?

Some gold miners recently dipped below their June lows. Was that a red flag or a manufactured shakeout? Below are key levels I will be watching. If it was just a shakeout, then miners may be on the verge of a significant rally.

GDX DAILY: Thursday’s sharp down day in miners was either a red flag or a shakeout. A shakeout occurs as prices form a new uptrend – when bulls remain skittish. It forces weak longs to sell (puke-up) their positions just before the next rally. A close above $35.00 next week would support the shakeout theory. However, a close above $36.75 is needed to suggest a more meaningful advance.

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To support a more bearish outcome, GDX needs to close progressively below $33.00 and then below $30.00.

Note- Our metals portfolios recently bought gold miners and will continue to accumulate precious metal assets moving forward.

Gold Price Scenarios and Projections

GOLD MONTHLY VALUE: With the fundamental backdrop of endless budget deficits and record-setting monetary policy. I believe there is a 70% bullish case for gold (scenarios A & B) to continue higher into 2023 and 2024. I see a 20% neutral (scenario C), suggesting gold stays below $2000 a bit longer. Lastly, I see a 10% bearish outlook (scenario D) that could allow gold to dip back to $1175.

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Probabilities Below:

A) Gold bottomed in March 2021 at $1673.30. The renewed uptrend supports a $3000 price target by Q2 2023. I assign a 40% probability.

B) The correction in gold extends back to the $1575 level a forms a lasting bottom. Closing above $2000 would report a $3000 target by Q2 2024. I assign a 30% probability.

C) A monthly close below $1575 would recommend a deeper correction to the bull market breakout area surrounding $1375. In this scenario, I’d expect a retest of $2000 by 2024. I assign a 20% probability.

D) Gold fails to hold $1375, and prices fall all the way back to $1175 by Q4 2024. I assign a 10% probability.

In closing, with the price of just about every commodity on the planet near new highs and trending higher, I believe it is just a matter of time before precious metals resume their bull market trends.

The only way I see gold dropping back to $1000 or lower (as some are expecting) would require a massive deflationary shock. If that occurs, then everything will collapse in value, including an 80% decline in global stock markets. Either way, it may be wise to have some physical gold for deflation and some investment gold and miners for an inflationary shock wave.

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.

 

European Equities: A Month in Review – June 2021

The Majors

It was another bullish month for the European majors in May, logging a 5th consecutive monthly gain.

The EuroStoxx600 rose by 1.36% to lead the way, with the CAC40 and the DAX30 gaining 0.94% and 0.71% respectively.

After a bearish start to the year, with January having delivered heavy losses, the CAC40 was up 17.2% year-to-date. The DAX30 and EuroStoxx600 weren’t far behind, with year-to-date gains of 13.2% and 13.5% respectively.

The general market theme remained unchanged at the end of the 2nd quarter. Economic data and continued assurances from the ECB of unwavering support delivered the upside in June.

In June’s ECB press conference and in separate speeches, ECB President Lagarde talked of a speedier economic recovery in the 2nd half of the year. This was coupled with assurances that there would be no near-term shift in monetary policy.

From the U.S, a more hawkish than expected FED failed to derail the European market rally. This was in spite of a number of FOMC members talking of a possible rate hike as early as next year.

While monetary policy and economic data provided support, the spread of the Delta variant of the coronavirus limited the upside late in the month.

The Stats

It was a busy month on the Eurozone economic calendar. Inflation, private sector PMIs, and consumer confidence were key areas of focus.

The Private Sector

Private sector PMIs continued to impress in June, with service sector activity seeing a further pickup in activity.

Eurozone member states eased lockdown measures and reopened borders to tourism, supporting the sector.

For the Eurozone, the services PMI rose from 55.2 to 58.0, with the manufacturing PMI holding steady at 63.1, according to June prelim figures.

As a result, the Eurozone’s composite PMI rose from 57.1 to a 180-month high 59.2.

For Germany, a pickup in manufacturing sector activity was also market positive. Manufacturing sector growth had slowed marginally in the preceding months.

Consumer Confidence

With the ECB looking towards a consumer driven pickup in economic activity, consumer confidence and economic sentiment were also on the rise.

For the Eurozone, consumer sentiment increased from -5.1 to -3.3 in June, which was in line with prelim figures.

Sentiment towards the economy was also on the rise. The Eurozone’s economic sentiment indicator increased from 114.5 to 117.9. Economists had forecast an increase to 116.5.

Inflation

In the month, jitters over inflation had tested support for the majors before central bank assurances delivered comfort. The general view has been that the spike in inflation is transitory, with inflation likely to soften going into next year.

According to prelim figures for the Eurozone, the annual rate of inflation softened from 2.0% to 1.9% in June. Month-on-month, consumer prices rose by 0.3% following a 0.3% increase in May.

From the U.S

Economic data was also skewed to the positive in the month.

Inflationary pressures continued to raise the prospects of a sooner rather than later shift in FED monetary policy.

According to the FED’s preferred core PCE Price Index, the annual rate of inflation accelerated from 3.1% to 3.4% in May.

While the acceleration was aligned with market expectations, labor market data continued to ease pressure on the FED.

NFP numbers for May disappointed, with nonfarm payrolls rising by just 559k, which was well short of the ADP’s 886k rise.

Weekly jobless claim figures also pointed to continued slack in the economy. After having fallen to a June low 376k, initial jobless claims crept back up to 400k levels in the 2nd half of the month.

While labor market numbers failed to impress, private sector PMIs were skewed to the positive.

In May, the all-important ISM Non-Manufacturing PMI rose from 62.7 to 64.0, with the ISM Manufacturing PMI increasing from 60.7 to 61.2.

Consumer confidence was also on the rise, hitting a 16-month high in June. A marked improvement in labor market conditions would therefore support a sharper pickup in service sector activity and consumption. Such an eventuality would give the hawks a stronger footing in terms of monetary policy.

All-in-all, the numbers supported the FED’s optimistic outlook on the economy.

The Market Movers

For the DAX: It was a mixed month for the auto sector in June. Continental and BMW rallied by 3.64% and by 3.31% respectively. Daimler and Volkswagen bucked the trend, however, ending the month down by 0.66% and by 7.49% respectively.

It was a bearish month for the banks. Deutsche Bank and Commerzbank slid by 9.09% and by 9.39% respectively.

From the CAC, it was a bearish month for the banking sector. BNP Paribas and Soc Gen slid by 5.34% and by 5.11% respectively. Credit Agricole saw a more modest 3.20% loss in the month, however.

It was another bullish month for the auto sector. Renault and Stellantis NV ended the month up by 0.74% and by 1.82% respectively.

Air France-KLM tumbled by 12.02% as a result of the Delta variant, while Airbus SE rose by 1.67%.

On the VIX Index

It was a 5th consecutive month in the red for the VIX in June, delivering a 7th monthly decline in 10-months.

Following on from a 9.94% decline in May, the VIX fell by 5.55% to end the month at 15.83.

In June, the NASDAQ rallied by 5.49%, with the S&P500 ending the month up by 2.22%. The Dow bucked the trend, however, falling by 0.08%.

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The Month Ahead

Following a string of impressive numbers from the Eurozone, we can expect continued focus on key stats.

While private sector PMIs and inflation will remain key drivers, consumer consumption and confidence will have greater significance. The markets will be looking for stats to be aligned with the ECB’s more optimistic outlook towards the economic recovery.

A continued pickup in private sector activity would support a more hawkish stance by the ECB. Much will depend on whether inflationary pressures continue to build and on COVID-19 updates in the month, however.

From the U.S, the big question will be whether tapering talk gathers momentum.

The markets will likely continue to focus on labor market and inflation figures. Consumer confidence and spending will need to remain on an upward trend, however.

As such, we can expect greater market sensitivity to FOMC member chatter in the month ahead.

From China, private sector PMIs will also draw interest following some weaker numbers of late…

Gold’s Path to the Mid-2000s

Over the past few weeks, I have shared my views on GOLD’s potential path for attaining as high as $2100-2300. I showed the detailed daily charts in those articles, but today I would like to zoom out and assess the big picture Elliott Wave Principle (EWP) count using the monthly candlestick charts. See Figure 1 below.

GOLD topped in 2011 after an almost 700% (!) run since its early-2000s low. Thus, anybody who thinks GOLD is boring to trade and invest may wish to change that notion. These are cryptocurrency-like gains. After the 2011 top, the precious metal went into an almost five-year-long Bear market. It lost around 50% of its value when it finally bottomed in 2015.

Now GOLD is back at it and made a new all-time high summer of 2020, after which it went through an 8-months long correction. As I showed in my previous update, see here, GOLD should now be in a new Bull run targeting possibly as high as $2300+. Allow me to explain below.

Figure 1. GOLD monthly charts with detailed EWP count and technical indicators.

Dissecting a multi-month impulsive rally to ideally $2300.

Since its 2018 low, GOLD rallied in five larger waves (black major 1, 2, 3, 4, 5) to the 2020 ATH: blue primary III. It then declined in three waves (black major waves a, b, c) to complete blue Primary-IV. From the EWP, we know with certainty that in an impulse move, after the third wave comes a fourth and a fifth wave. So far, so good as wave-III and IV have most likely been completed. Now, wave-V should be underway (blue arrow) and subdivide into five smaller waves as shown in Figure 1; black dotted arrows.

Assuming standard Fibonacci-based wave-extensions and retraces, wave-1 should soon complete, wave-2 drop back to about $1800 before waves 3, 4, 5 take hold and bring the price to ideally ~$2300, $2100, and $2300+, respectively. Once Primary-V completes, another multi-year bear market should start (Red arrow). Given that there was no negative divergence on any of the technical indicators at the July 2020 ATH, strongly suggests GOLD needs to make new ATHs.

Bottom line. For as long as GOLD can stay above this year’s lows, it has outstanding potential to establish an impulsive wave higher to ideally $2300, possibly $2400+.

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

European Equities: A Month in Review – May 2021

The Majors

It was yet another bullish month for the European majors in May, logging a 4th consecutive monthly gain.

The CAC40 rose by 2.83% to lead the way, with the DAX30 and EuroStoxx600 gaining 1.88% and 2.11% respectively.

After a bearish start to the year, with January having delivered heavy losses, the CAC40 was up 16.14% year-to-date. The DAX30 and EuroStoxx600 weren’t far behind, with year-to-date gains of 12.41% and 11.96% respectively.

Economic data and continued assurances from the ECB of unwavering support delivered the upside in May.

Market optimism towards the economic outlook, as the EU began to reopen for tourism also drove the major markets northwards.

The Stats

It was a busy month on the Eurozone economic calendar.

While 1st quarter GDP figures for Germany and France disappointed, private sector PMIs continued to impress.

The markets were able to stomach softer manufacturing numbers, with the services sector seeing a marked pickup in growth.

According to prelim figures for May, the Eurozone’s services PMI jumped from 50.5 to 55.1, while the manufacturing PMI slipped from 62.9 to 62.8.

Consumer and business confidence was also on the rise in response to the reopening of economies across the EU.

The pickup in both business and consumer confidence was aligned with market optimism towards the economic outlook.

In May, Germany’s IFO Business Climate Index rose from 96.6 to 99.2, with the GfK Consumer Climate Index climbing from -8.6 to -7.0 for June.

Confidence was also on the rise in France.

Inflation figures did influence in the month, however, with inflation accelerating across the Eurozone.

According to prelim figures, Germany’s annual rate of inflation ticked up from 2.0% to 2.5%. Italy also experienced a pickup in inflationary pressures, as did France and Spain.

Assurances from the ECB that there would be no tapering to the asset purchasing program limited the damage, however.

From the U.S

Economic data was also skewed to the positive in the month.

Key through the month was a downward trend in the weekly jobless claims.

After having fallen to sub-500k levels in the week ending 30th April, claims fell to 406k in the week ending 21st May.

April core durable goods and 1st quarter GDP numbers also delivered support, as did a marked increase in service sector activity.

According to prelim figures, the Markit Services PMI increased from 64.7 to 70.1 in May.

A pickup in inflationary pressure did test the markets, however. The FED’s preferred Core PCE Price Index jumped by 3.1% year-on-year in April. In March, the index had increased by a more modest 1.9%.

Following assurances from the FED Chair that there would be no tapering to the asset purchasing program, the latest FOMC minutes revealed that members were willing to begin discussing a possible tapering in the coming months.

Over the course of the month, FOMC members voiced similar sentiment. In spite of the FED’s likely shift, however, market optimism towards the economic outlook limited the impact on the European majors.

The Market Movers

For the DAX: It was a bullish month for the auto sector in May. Continental rallied by 6.73%, with Volkswagen and BMW seeing gains of 5.28% and 4.07% respectively. Daimler ended the month with a more modest 2.77% gain.

It was another bullish month for the banks. Deutsche Bank rose by 4.04%, with Commerzbank jumping by 20.22%.

From the CAC, it was a mixed month for the banking sector. Soc Gen led the way once more, however, rallying by 10.69%, with BNP Paribas gaining 4.61%. Credit Agricole bucked the trend, however, sliding by 5.21%.

It was also a bullish month for the auto sector. Renault and Stellantis NV ended the month up by 0.89% and by 17.71% respectively.

Air France-KLM slipped by 0.22%, while Airbus SE rose by 6.72%.

While economic data and a reopening of economies provided direction, corporate earnings were also in play early in the month.

On the VIX Index

It was a 4th consecutive month in the red for the VIX in May, delivering a 6th monthly decline in 9-months.

Following on from a 4.07% decline in April, the VIX fell by 9.94% to end the month at 16.76.

In April, the NASDAQ fell by 1.53%, while the Dow and the S&P500 ended the month up by 1.93% and by 0.55% respectively.

VIX 010621 Monthly Chart

The Month Ahead

Following a string of impressive numbers from the Eurozone and China, we can expect continued focus on key stats.

While private sector PMIs, employment, and consumption will remain key drivers, inflation will also remain a key area of focus.

A continued uptick in inflationary pressures will bring into question assurances from the ECB doves.

From the U.S, the FED talked of a willingness to begin tapering its asset purchasing program. Much, however, will depend on inflation, consumption, and labor market conditions.

We could see more than a taper tantrum should economic indicators glow red hot.

Expect private sector PMI and trade figures from China to also influence along with spending plan chatter from Brussels and Capitol Hill.

Both Gold and Copper Have Dad Two Months of Stellar Performance

In an odd way, the core root behind the massive upside moves in both copper and gold are a byproduct of the same event. The massive recession and economic contraction, which began in March 2020 led to extreme actions by both the Federal Reserve and other central banks worldwide. These actions continue to this day and are one of the primary reasons we see an end to the recession as countries worldwide begin to reopen as their economies rebuild.

It is inflationary fears and massive fiscal stimulus creating huge national debt that is a major component of dollar weakness and exceedingly strong gold pricing, which is now back over $1900 per ounce.

In the case of copper, its price surge is a direct result of stimulus programs both in the United States and China as well as other major Western economies rebuilding their economies through major infrastructure projects and for use in manufacturing.

Although China is the largest global producer of copper, internally it does not produce enough to satisfy its needs. According to the United States International Trade Commission, “China is the largest global producer of copper, even though it mines a limited supply of copper ores. This is explained by the fact that China imports significant quantities of copper ores and waste/scrap for smelting and refining into pure forms of copper to sell on domestic and international markets.”

As countries worldwide moved to create cleaner energy production, the use of copper in both solar and wind farms requires massive amounts of copper to integrate the systems. In the United States, part of the current administration’s new infrastructure proposal will require increased amounts of copper to reach their goal of cleaner energy production.

Copper Pricing

At the beginning of 2021 copper was trading at approximately $3.50 per pound. At the beginning of April copper had risen to $3.98 per pound and closed on the last trading day of May at $4.67 per pound. That means that copper has gained roughly $0.69 over the last two trading months, a gain of 17.34%. To a futures trader that represents a sizable gain as the contract size of copper is 25,000 pounds. Traders who were long copper over the last two months were able to glean $17,250 per contract, with the current margin requirement of $6000 per contract, which represents a substantial profit.

Even more impressive is the fact that the commodity strategists at Bank of America have forecast copper prices will rise to as high as $5.87 per pound. Commodity analysts at the CIBC bank are also predicting tremendous price increases anticipating that copper will rise to $5.25 a pound by the end of this year or the first quarter of next year.

copper monthly chart

Gold pricing

Gold prices have also had a stellar performance over the last two months gaining roughly $197 per ounce. That represents a net gain for the last two months of 11.55%. That also represents a tremendous gain for the futures traders who were wise enough to be long gold over the last two months. Since the contract size of a Comex futures contract is 100 ounces, traders who were long over the last two months would’ve realized a profit of $19,700 per contract.

Gold monthly chart

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

Bounce in Gold Complete: $1620s Next?

Two weeks later, in the follow-up update, see here, I confirmed this thesis and narrowed the bounce target to $1820+/-20. Gold rallied to as high as $1798 on April 21, 22, and has since started to decline. See Figure 1 below. Gold June 21 contracts are currently trading at $1767/ounce (not shown in Figure 1).

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

Did the bounce complete, and is the next move lower underway?

The thick dotted orange arrows in Figure 1 show the path I anticipated in early March. Besides the late-March double bottom, GOLD has followed along remarkably well. If the Bears can push the price back down $1745, the 50-day Simple Moving Average (SMA) increases the odds for a retest of $1680-1620, with $1620 preferred based on simple symmetry (C=A: black dotted arrows).

The aforementioned double bottom does present a bit of a twist. It can mean the entire correction has already been completed and blue wave-V to the low- to mid-2000s is already underway (exemplified by the blue dotted line). But for now, I consider this option lower odds, as it would require

  1. A daily close back above the 200-day SMA (now at $1857)
  2. A daily close back above the upper grey trend line of the downtrend channel GOLD has been in since late July last year.

Thus, there’s plenty of upside left (~25%) when GOLD checks the above two boxes, and I instead prefer to enter low risk, high odds trades than high-risk, low odds trades.

Back to the preferred view. The by now nine months’ long correction (!) GOLD has been subjected to, is, in EWP-terms, called a double zigzag (see here). Incredibly complex and frustrating, as I’ve had to navigate my Premium Members for many months through very erratic downward sloping price action. But now the end appears near, and my Premium Members are gearing up to buy GOLD. Are you ready too?!

Bottom line: The in early-March anticipated bounce may have completed $2 (0.11%) below the ideal target zone last week. It is hard to get more accurate than this six weeks in advance. Regardless, if the Gold Bugs are not careful, GOLD should drop one last time to ideally $1680-1620 before staging a multi-month rally to new all-time highs. Conversely, this rally has already started, but the market has not given us the all-clear signal that is indeed the case.

 

Ethereum Reached the 2800s. What’s Next!?

I say “mostly” because I did not get it right all the time, which is, of course, impossible when one is trying to forecast a non-linear, stochastic environment. And I will be first to admit “I am wrong till proven right,” as that allows for a humble, objective approach to improve my forecasting accuracy and reliability for my premium crypto members. But, as you may recall, $2775+/-100, $2700-2855 more specifically, was my next intermediate-term upside target for ETH for quite some time, and this week it has been reached.

So what is next?

Not shown here, but the daily chart for ETH strongly suggests it is wrapping up some tiny 4th and 5th EWP waves to complete the more significant (black) major-3 wave, as shown in Figure 1 below.

Figure 1. ETH monthly EWP count and technical indicators.

The rally to $2860 will soon complete

The monthly chart above tells what the big-picture, long-term trend, and EWP count is. ETH is in a solid Bull market as it is well above its ascending 10-month, 20-month, and 50-month Simple Moving Averages (SMA), with the 10>20>50. A 100% Bullish setup. In addition, the monthly Relative Strength Indicator (RSI5) is at almost 99, showing how strong the current uptrend is as the maximum possible reading is 100.

The summer of 2017 had similarly high monthly RSI5 readings (red box): 99.18 and 99.38, respectively. ETH peaked in June 2017 at $417.21, dropped to $132.64 in July 2017, followed by a rally to $1422.86 in January 2018. A 68% correction, followed by 970% gain. Quite impressive numbers. Back then, ETH completed blue Primary III, IV, and V of pink Cycle wave-1, respectively. Therefore, the instrument is in a similar wave setup now, albeit at different degrees: currently completing Major wave-3 of Primary-III. The current maxed out RSI5 reading supports this notion as 3rd of 3rd waves are the most substantial waves. Given the near-vertical ascend of ETH over the past six months, it is pretty obvious we are dealing with such a wave, and the 2017 analogy tells us we should expect a pretty decent correction soon: wave-4.

Typically 4th waves retrace between 23.60-38.20% of the initial 3rd wave but can extend to the 50% retrace. If anything, 2017 showed us it could even be more. The black box in Figure 1 shows the standard, textbook, target zone for this pending wave-4. Besides, horizontal support resides at $1900-2000 and $1300-1500. The latter area would “only” be a 55% decline for ETH and still fit well with the 2017 correction. An almost 1000% advance, even from those levels, would target the low- to mid-ten thousands. But for now, let’s focus on the pending decline, as extreme wave extensions cannot be forecasted and thus not guaranteed.

Bottom line: The anticipated rally to the ideal target zone of $2700-2855 has been accomplished. Although wave-extensions, i.e., even slightly higher prices, can not be excluded, I now expect a multi-week decline back to at least around $1900-2000, but ideally $1400+/-100. The latter would be an almost 50% haircut, which is not uncommon before ETH is ready to stage its next multi-month rally. A move and close below this week’s low at $2088 from current levels or slightly higher will signal this deep correction is underway.

 

European Equities: A Month in Review – April 2021

The Majors

It was yet another bullish month for the European majors in April, which logged a 3rd consecutive monthly gain.

The CAC40 rose by 3.33% to lead the way, with the DAX30 and EuroStoxx600 gaining 0.85% and 1.85% respectively.

After a bearish start to the year, with January having delivered heavy losses, the CAC40 was up 12.93% year-to-date. The DAX30 and EuroStoxx600 weren’t far behind, with year-to-date gains of 10.33% and 9.65% respectively.

Economic data, corporate earnings, and continued assurances from the ECB and the FED delivered support in April. Stats in the final week, which included Q1 GDP numbers, delivered some disappointment, however.

Market optimism towards the economic outlook, as the EU began to play catch up on the vaccination front also delivered support. This was in spite of the reintroduction of lockdown measures that continued to weigh on the economy.

The Stats

It was a busy month on the Eurozone economic calendar and another important one.

Private sector activity continued to be a key area of interest for the markets, with GDP numbers also garnering plenty of interest. In April, while German firms reported a slight slowdown in private sector growth, the Eurozone’s manufacturing PMI hit a new all-time high.

More importantly, the services sector also returned to growth in April, with the PMI hitting an 8-month high.

The continued pickup in private sector activity came in spite of the upward trend in new COVID-19 cases worldwide.

GDP numbers for France, Germany, and the Eurozone delivered mixed results, however.

In the 1st quarter, the German economy contracted by 1.7%, which was worse than a forecasted 1.5% contraction. The German economy had expanded by a modest 0.3% in the 4th quarter.

Year-on-year, the economy contracted by 3.3% in the 1st quarter. The economy had contracted by 2.7% in the final quarter of last year.

The French economy expanded by 0.4% in the 1st quarter, coming in ahead of a forecasted 0.1% growth. The economy had contracted by 1.4% in Q42020.

In the 1st quarter, the Eurozone economy contracted by 0.6%, quarter-on-quarter, and by 1.8% compared with Q1 2020.

In the 4th quarter, the economy had contracted by 0.7% quarter-on-quarter and by 4.9% year-on-year.

Other key stats in the month included business and consumer confidence figures from Germany and the Eurozone.

From Germany, factory orders, industrial production, and trade data were also in focus.

The stats were skewed to the negative, with industrial production in decline and Germany’s trade surplus narrowing in February.

There was an increase in factory orders, however, albeit at a slower pace than in January.

Inflation figures for the Eurozone and member states had a muted impact on the majors, however, with the ECB expecting inflationary pressures to ease later in the year.

From the U.S

Economic data was also skewed to the positive in the month.

Key in the month were improving labor market conditions and a further pickup in private sector activity.

For March, nonfarm payrolls surged by 916k, following a 468k jump in February. While the participation rate increased from 61.4% to 61.6, the unemployment rate fell from 6.2% to 6.0%.

Jobless claim figures were also pointing to an improvement in labor market conditions.

In the month, initial jobless claims fell to a low 553k in the week ending 23rd April. This was the lowest level since the sharp spike in claims at the start of the pandemic.

Initial jobless claims had hit an all-time high of 6,606k back in the week ending 2nd April 2020.

Improving labor market conditions supported a pickup in consumer confidence in the quarter.

Retail sales bounced back in March, with core retail sales surging by 8.4% to reverse a 2.7% decline from February. Personal spending figures for March also impressed, with spending rising by 4.2% reversing a 1% fall from February.

With consumer confidence on the rise, consumption drove a pickup in service sector activity. In April, the CB Consumer Confidence Index increased from 109.0 to 121.7. The pickup painted a positive outlook on the consumption front in the near-term.

1st quarter GDP numbers from the U.S also impressed, with the economy expanding by 6.4%. In the 4th quarter, the economy had expanded by 4.3%.

Monetary Policy

There were no major surprises from the ECB, with ECB President Lagarde talking of a possible contraction in the 1st quarter.

For the markets, the ramp up in bond purchases was good enough…

From the FED, FED Chair Powell continued to quash any talk of a shift in monetary policy outlook and any tapering. The FED Chair reassured the markets that there would be plenty of warning before the FED even considering any tapering to its asset purchasing program.

The Market Movers

For the DAX: It was a bearish month for the auto sector in April. Volkswagen slid by 9.21% to partially reverse a 37.96% surge from March.

BMW and Daimler ended the month down by 5.94% and by 2.35% respectively, while Continental slipped by 0.09%.

It was a bullish month for the banks, however. Deutsche Bank rallied by 13.80%, with Commerzbank gaining 4.97%.

From the CAC, it was another bullish month for the banking sector. BNP Paribas and Credit Agricole rose by 2.91% and by 4.21% respectively. Soc Gen led the way once more, however, gaining 6.05%.

It was a bearish month for the auto sector. Renault and Stellantis NV ended the month down by 9.21% and by 8.43% respectively.

Air France-KLM slid by 9.10%, while Airbus SE rose by 3.52%.

On the VIX Index

It was a 3rd consecutive month in the red for the VIX in April, delivering a 5th monthly decline in 8-months. Following on from a 30.59% slide in March, the VIX fell by 4.07% to end the month at 18.61.

In March, the Dow rose by 2.71%, with the NASDAQ and the S&P500 ending the month up by 5.40% and by 5.24% respectively.

VIX 010521 Monthly Chart

The Month Ahead

Mid-way through the 2nd quarter, we can expect even greater focus on the Eurozone economic calendar. While the markets will look for manufacturing sector activity to deliver, service sector conditions will also need to improve further.

An easing of containment measures would be needed to support a marked pickup in service sector activity. This would, therefore, likely place greater emphasis on vaccination rates for France, Germany, and Italy in particular.

Labor market conditions and consumer and business confidence will need to improve to support a pickup in hiring and business investment.

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

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

On the monetary policy front, the markets will remain wary of any shift in monetary policy outlook, particularly from the FED.

Geopolitics will also garner some interest, with China, Russia, and Iran remaining key areas of focus.

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