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In late 2014, the market was alive with chatter about the dreaded Hindenburg Omen which was supposed to foretell a collapse. In notes at the time we explained why this analysis was so much claptrap. Subsequently, the S&P added 33 percent.
Now the media is awash with the idea that the S&P is in danger of imminent collapse, but this recent talk is just as specious as the Hindenburg omen.
Markets do not suddenly collapse out of the blue, or because some magical number is reached. Markets most often give clear signals of weakness and these show up as end-of-trend chart patterns.
The rebound rally in gold is well established with a move above $1,220. The upside target is near $1,290. It's good to see the gold uptrend continuing, but the upside target delivers 5.7 percent profit. Rather than trade gold, there are more effective and profitable ways to trade this rebound. Gold's companion, silver, has similar characteristics but offers a higher return for the same behavior.
Silver lags the gold price behavior. Silver has a resistance level near $18.75 and then at $21.00. The $18.75 level is the equivalent to the $1,290 resistance level on the gold chart. Since silver lags gold, its price is only just moving above the Traders ATR breakout line near $17.30.
A breakout at this level has target near $18.72. This trade offers a 8.3 percent return compared with a 5.7 percent return from gold for the same price behavior move.
Silver has a longer term upside target of $21.00. That's 16.6 percent from the current price near $18.00.
Silver is slower to move, but it has more room to move and that delivers better profits. Note the silver price is shown in cents.
Starting in January, the Australian dollar developed a strong rally. The rally has technical limits and two significant resistance features which may act to cap the rise and drive the Australia dollar into weakness.
When applying technical analysis indicators, it is important to know when not to apply a particular indicator. We use Guppy Multiple Moving Average indicator analysis to identify trend strength and changes. In these situations it is a powerful analysis tool. The Australian dollar chart does not have these features. Instead, the Australian dollar is confined by a long term sideways trading band starting in 2016 April.
This is a non-trending environment and GMMA analysis is not a useful analysis tool. Instead, analysis is better applied using support and resistance levels and trend lines.
The Australian dollar weekly chart has a well-defined resistance level near $0.775. The $0.77 to $0.775 resistance level has been tested 8 times in the past 10 months. There is a high probability this level will again act as a successful resistance level with the Australian dollar developing a rapid retreat.
A second resistance feature is the upsloping trend line. The anchor point for this trend line is the low of $0.68 in 2016 January. The second anchor point is the low of $0.715 in 2016 June. This trend line acted as a support level until November 2016 when the Australian dollar plunged to $0.73.
The dollar index rapidly rose to nearly $1.04 following President Donald Trump's confirmation.
It has fallen steadily since and is now re-testing the $1.005 support level. This rally, retreat and retest activity is often followed by a rebound rally. The potential for a rebound has increased in the run-up to the presidential inauguration day and the immediate policy announcements which will follow.
The weekly chart provides better guidance to the support and resistance features on the dollar Index chart. The dominant feature on the weekly dollar index chart is the broad trading band between $0.93 and $1.005.
This trading band has dominated dollar index behavior since January 2015. Support near $0.93 has been tested four times. resistance near $1.005 has been directly tested twice. Lower level resistance near $1.00 has been tested five times. The move above $1.0005 was very important because it's a breakout from this prolonged 22-month sideways trading pattern.
The breakout moved to near $1.04 and is retesting the $1.005 level as a support level. A successful retest of support confirms the strength of the breakout. Failure of the support level will see the dollar test the next support level. This support level is created by the uptrend line starting from the low near $0.92 in May 2016. The current value of this support trend line is near $0.975.
U.S. markets have been in a sustained uptrend since 2012. The election of President Trump has accelerated this trend in anticipation of a boost to the U.S. economy through proposed infrastructure spending.
But in truth, the U.S. economy has been growing steadily since 2012 although that wasn't enough to support oil prices which collapsed in mid-2014. The oil price did not reflect the U.S. economic expansion in this period. The price developed a recovery in 2016 but will this continue in 2017 or will the oil price fall again?
Chart analysis provides us with a methodology to understand market behaviour and set future targets. Chart analysis identifies trigger points which confirm when the market has taken significant steps towards meeting the new target conditions, or when the conditions have failed.
The long-term outlook for NYMEX oil remains bullish with initial targets at $58 and medium term targets near $68 and $72. These target levels are derived from two sets of chart features. They are: The long-term chart pattern and the history of support and resistance trading bands.
The first feature is the development of an inverted head and shoulder reversal pattern. This is a long-term trend reversal pattern that started in mid-2015 and which was confirmed towards the end of 2016. It is best seen on the weekly price chart.
The Nikkei 225 dropped quickly when the first announcement of Donald Trump's victory was in Asian trading on Nov. 9, following the U.S. election and set the tone for other world markets. The dip briefly retested the support level near 16,200 and then rallied quickly.
But the Nikkei has since resumed its breakout uptrend, highlighting two powerful breakout patterns.
The first pattern is the double bottom pattern. This is created by the low near 14,865 in 2016 February and again in June. This chart pattern is used to set a projected upside target near 20,347.
The double bottom pattern is also sometimes called a W pattern. The distance between the base of the pattern at 14,865 and the peak of the pattern near 17,613 is measured. This value is then projected upwards above the W peak to give the long term upside target. This target is near 20,347.
The breakout develops in two stages. The first target is a rebound from support near 14,865 to a peak of the W pattern near 17,613. This level was achieved and as expected there was some consolidation around this. The current breakout is moving towards the long term target near 20,347. The next minor consolidation band resistance level is near 19,000.
The US election is not as scary as some gold bugs imagined. After a fall, and rebound rally, the gold price resumed its downtrend. Weeks ago we asked who stole the gold? Now we know the answer.
We re-assess the extent of the damage and the now limited potential for recovery.
We start with damage assessment. The fall below the historical resistance and support level near $1,290 is critical.
The rally was a dead cat bounce, and yes, we were caught on the wrong side of it.
The rebound rally in gold is well established with a move above $1,290. The upside target is near $1,350.
It's good to see the gold uptrend continuing but the upside target delivers only 4.65% profit. Rather than trade gold there are more effective and profitable ways to trade this rebound. Gold's companion, silver, has similar characteristics but offers a higher return for the same behavior.
Silver lags the gold price behavior. Silver has a resistance level near $18.75. This is the equivalent to the $1,290 resistance level on the gold chart. Silver lags gold so the silver price is only just moving above resistance near $18.75.
A breakout at this level has a target near $21.00. This trade offers a 12% return compared with a 4.65% return from gold for the same price behavior move.
Silver has a longer term upside target of $26.00. That's 36.8% from the current price near $19.00.
Silver is slower to move but it has more room to move and this delivers better profits. Note the silver price is shown in cents.
The first resistance level is near $18.70. This was decisively broken. The price tested the weak resistance level near $21.00 but then collapsed below support and tested support at the lower edge of the long-term GMMA.