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

 

February’s US Employment Situation Report in Focus

Reading time: 15 minutes

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

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

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

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

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

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

(Source: Reuters)

Unemployment Rate

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

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

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

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

The survey also noted the following points:

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

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

(Source: Reuters)

Average Hourly Earnings

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

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

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

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

(Source: Reuters)

ADP Non-Farm Employment Change

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

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

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

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

(Source: Reuters)

ISM Manufacturing PMI

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

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

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

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

(Source: Reuters)

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

(Source: Reuters)

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

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

ISM also noted:

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

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

(Source: Reuters)

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

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

Consumer Confidence

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

According to the Conference Board[6]:

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

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

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

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

(Source: Reuters)

Initial Jobless Claims

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

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

The DOL also noted:

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

(Source: Reuters)

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

(Source: Reuters)

FP Markets Technical View

Monthly timeframe:

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

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

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

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

Daily timeframe:

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

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

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

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

DISCLAIMER:

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

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

Gold Predictive Modeling Suggests A New Rally Targeting $2300+

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

Monthly ADL Gold Predictions

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

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

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

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

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

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

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

Miner ETFs May See Big Gains

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

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

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

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

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

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

 

Should You Buy Gold Soon?

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

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

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

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

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

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

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

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

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

Gold Forecast – Expecting a Bottom in Gold this Week

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

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

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

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

 

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

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

 

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

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

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

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

 

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

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

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

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

European Equities: A Month in Review – February 2021

The Majors

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

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

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

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

Corporate earnings also delivered support in the month.

The Stats

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

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

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

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

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

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

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

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

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

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

From the U.S

Economic data delivered mixed results once more.

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

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

Also negative was slower growth in the manufacturing sector.

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

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

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

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

Monetary Policy

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

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

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

The Market Movers

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

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

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

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

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

On the VIX Index

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

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

VIX 270221 Monthly Chart

The Month Ahead

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

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

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

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

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

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

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

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

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

Gold Price Forecast – Major Breakdown or Buying Opportunity

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

GOLD BIG PICTURE UPDATE

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

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

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

Diagram Description automatically generated with medium confidence

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

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

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

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

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

European Equities: A Month in Review – January 2021

The Majors

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

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

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

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

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

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

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

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

The Stats

It was a busier month on the Eurozone economic calendar.

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

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

Private sector PMI delivered mixed results for January.

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

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

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

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

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

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

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

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

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

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

From the U.S

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

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

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

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

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

Monetary Policy

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

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

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

The Market Movers

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

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

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

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

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

On the VIX Index

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

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

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

VIX 300121 Monthly Chart

The Month Ahead

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

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

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

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

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

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

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

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

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

European Equities: A Month in Review – December 2020

The Majors

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

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

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

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

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

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

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

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

The Stats

It was a quieter month on the Eurozone economic calendar.

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

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

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

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

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

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

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

From the U.S

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

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

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

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

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

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

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

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

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

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

Monetary Policy

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

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

In December, the FED left interest rates unchanged.

The Market Movers

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

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

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

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

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

On the VIX Index

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

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

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

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

VIX 010121 Monthly Chart

The Month Ahead

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

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

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

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

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

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

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

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

European Equities: A Month in Review – November 2020

The Majors

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

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

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

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

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

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

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

The Stats

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

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

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

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

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

Other stats were mixed in the month.

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

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

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

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

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

From the U.S

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

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

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

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

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

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

Monetary Policy

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

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

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

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

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

The Market Movers

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

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

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

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

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

On the VIX Index

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

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

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

VIX November Monthly Chart

The Month Ahead

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

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

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

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

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

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

European Equities: A Month in Review – October 2020

The Majors

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

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

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

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

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

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

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

The Stats

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

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

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

Other stats were also mixed in the month.

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

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

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

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

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

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

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

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

From the U.S

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

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

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

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

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

Monetary Policy

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

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

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

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

The Market Movers

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

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

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

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

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

On the VIX Index

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

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

VIX 31/10/20 Monthly Chart

The Month Ahead

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

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

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

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

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

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

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

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

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

European Equities: A Month in Review – September 2020

The Majors

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

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

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

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

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

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

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

The Stats

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

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

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

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

Other stats were also mixed in the month.

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

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

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

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

From the U.S

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

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

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

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

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

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

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

Monetary Policy

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

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

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

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

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

The Market Movers

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

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

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

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

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

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

On the VIX Index

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

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

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

VIX 01/10/20 Monthly Chart

The Month Ahead

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

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

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

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

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

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

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

European Equities: A Month in Review – August 2020

The Majors

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

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

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

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

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

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

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

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

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

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

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

The Stats

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

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

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

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

Other stats were also mixed in the month.

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

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

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

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

From the U.S

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

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

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

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

Monetary Policy

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

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

The Market Movers

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

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

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

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

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

On the VIX Index

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

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

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

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

VIX 01/09/20 Monthly Chart

The Month Ahead

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

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

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

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

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

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

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

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

Technical Analysis Points to US Dollar Upside Potential – Part I

Article Highlights:

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

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

UNDERSTANDING GLOBAL CURRENCY “SHININESS”

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

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

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

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

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

REPEATING US DOLLAR CYCLES

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

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

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

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

Chris Vermeulen
Chief Market Strategist
Founder of Technical Traders Ltd.

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