There has been an inconsistency in the behavior of the Dow and that of the S&P 500 and Nasdaq over the past few weeks.» Read More
In my recent discussion on the prospect of the Australian dollar reaching parity with the U.S. dollar , I indicated that I will go short on the Aussie when, and if, I receive a "parity invite".
Well, the invitation has arrived. Am I sticking to my guns, or will I attend as a reluctant guest?
Lets get one confusion out of the way - trading is not about being right. Trading is about being profitable. We take the action we think will be profitable, and if it proves otherwise, we quickly change our position. We may be wedded to our partners, but traders are not wedded to their positions.
In this party, I am a "banquet bug", so-called invited guests who turn up for no other purpose than to enjoy the hospitality and eat as much free food as possible. In this case, the surge in the Australia dollar certainly offers this opportunity.
So what is the evidence that suggests a retreat in the Australia dollar? And conversely, what are the signals that suggest a continuation of the upward trend of up to $0.20 above parity, as some forecasters have predicted?
I love gold.
I have mined for physical gold deep underground, fossicked for it in alluvial plains in central Australia, but I find that it is most easily turned into a profit trading COMEX and its derivatives.
Having said that, I am not blinded by love so I would begin to worry as gold moves towards the target price of $1,355. When that happens, I will need to identify the conditions that will predict either one of the following scenarios.
Momentum is weakening before reaching $1,355.
Momentum and trend reversal signals around the $1,355 level.
Continuation patterns around $1,355 that suggest the uptrend may continue.
The U.S. dollar index is not listening to the talk coming out of the U.S. mid-term elections. The greenback has continued to trend lower, now hovering at eight-month lows, despite Washington's threat to introduce a bill to pressure Beiing to revalue the yuan, in a bid to appease voters.
As recently as three weeks ago we remained bullish on oil. This view has now changed with a confirmation of a longer term chart pattern.
Nymex oil is now showing a bearish pattern. There are still additional moves required to fully confirm the pattern but the development of bearish pressure is increasing.
How often can you postpone the Aussie parity party?
In July 2008 the Australian dollar (AUD) pushed to $0.98 and parity party invitations were issued. Within days the currency plunged to $0.78, a decline of 12% The clawback to $0.94 took 12 months to November 2009 before the AUD reached strong resistance near $0.94.
The term “as safe as a bank” has pretty much become an oxymoron since 2008, when the global financial crisis began. The "Basel III" announcements, already described as old generals fighting past wars, will unlikely do much to bring confidence back to the sector.
There are some significant differences, but also similarities, in the behavior of the blue chip Dow Jones Industrials and the broader S&P 500 indices. Historically the most significant difference is in the way the 2009 recovery trend was defined.
The Dow's breakout in 2009 developed from an inverted head-and-shoulder pattern. The S&P's breakout, on the other hand, was a more classic one, breaking off above the downtrend line. this is important because it shows a divergence in behavior between the two indices - something we need to take into consideration when interpreting their current patterns.
Last week's occurrence of a second Hindenburg Omen in as many weeks has investors concerned if an Armageddon scenario is in the cards for the U.S. stock markets.
The Hindenburg Omen is a technical indicator used to foretell the collapse of the American market. The indicator is created by monitoring the number of stocks New York Stock Exchange making a new 52-week highs relative to the number of stocks making new 52-week lows. The omen is confirmed when both numbers are greater than 2.2 percent.
The Hindenburg Omen is specific to the NYSE, and the exact requirements of 2.2 percent often creates an illusion of reliability and has great emotional appeal. However, traders need to question if this type of "exactitude" is a result of a common statistical curve fitting called a "prima donna indicator".
Prima donna indicators, which only perform under very specific circumstances, should not be confused with robust analysis tools. The latter provides reliable results under a variety of conditions and in a variety of markets.
In recent weeks, the price of gold has rebounded from the support level of $1160, due to three main factors.
First is the confirmation that China has been buying gold and that it has become easier for people to buy gold. The World Gold Council estimates China produced 313 tons of gold in 2009 but demand is expected to be more than 420 tons.
Second, is the suggestion by the U.S. government that they will move into a second round of quantitative easing. This fear is combined with the developing double-dip in the U.S. economy as shown by the head-and-shoulder reversal pattern in the Dow.
Third is the call by American investment analysts at Goldman Sachs that gold could reach the price of $1,300. This is a conservative estimate, and just a few dollars higher than its recent high of $1,248.20.
The dollar continued its slide against the yen on Wednesday, moving within sight of a 15-year low versus the Japanese currency.
Just how low will the dollar-yen go?
Daryl Guppy is an independent technical analyst who appears frequently on CNBC Asia.