Top technician Ralph Acampora explains why stocks could be setting up for a rally back to old highs.» Read More
The shorts are feeling the squeeze, but can the bounce in gold turn into a true rally?
Gold is trading higher this Monday morning, and above the important $1,424 to $1,428 level. In the morning session, it reached our next resistance point, when it hit a high of $1,437.40.
So why is gold getting bid up?
Actually, it's pretty simple. With Friday's price action providing a close above $1,400, investors and traders are using the more stable price action as an opportunity to hunt for value. With headwind resistance levels at $1,437.50, $1,447, and $1,455.80 to $1,458.5, the major upside target will ultimately be $1,474 to $1,478.
Option expiration is this week, and many investors who protected long exposure by using put options or speculated short positions will be looking to close these options by buying futures or outright exiting the puts, which will help the market to bounce. This recovery, although strong this morning, is likely a consolidation rather than a reversal.
The bottom line: Look for a close above $1,455.80 to $1,458.5 to encourage more buying. A failure to close above $1,424 to $1,428 will be discouraging to the bull camp, and a new low on the session against $1,403.50 will be very bearish.
It's been a big help to the consumer—but maybe it should be a big worry to stock investors. That would be falling gas prices.
Over the past two months, unleaded gasoline prices have dropped by 18 percent, while the S&P 500 has risen nearly 4 percent. And here's why that could be trouble: Carter Worth, chief market technician at Oppenheimer, points out that every time the S&P has corrected by 5 percent or more since the market's March 2009 low, gasoline has either led that drop, or fallen with the market.
(Read More: Scary Pattern Could Be Forming on S&P 500 Chart)
Right now, the chart of the S&P 500 vs. unleaded gasoline shows a clear divergence:
Gold traded in a $20 range on Tuesday night, and given the recent action, that seems like a slow market. The $1,355 to $1,360 level has proved to be support since early Tuesday morning, and last night's low was higher than the low hit in yesterday's day session—$1,365.
After the International Monetary Fund trimmed its growth expectations Tuesday, there are further expectations of support from the Bank of Japan and the Fed, which has probably helped provide some intermediate-term support in gold.
(Read More: Gold Won't Rebound for a 'Long, Long Time': Analyst)
Gold hit a high of $1,404.20 on Tuesday before retreating by $40 later in the session. The longer that price action remains above $1,380, the more likely it is that we see buying lead to a retest of $1,400. A close above $1,400 could signal a slowdown and consolidation.
Meanwhile, a close back above $1,424 to $1,428 would probably indicate a consolidation higher, as investors find value. The major upside target is $1,474 to $1,478.
(Read More: So Gold Crashed, Now What?)
The major downside target of $1,300.90 will likely come into play only on a retest of $1,355 to $1,360 and a close below that level.
Copper is just one of the commodities that has shown major weakness this week, and today it fell to the lowest level since October 2011.
Some worry that this could be bad news for the stock market. After all, the metal is sometimes called "Dr.Copper," because it is thought to check up on the market's health.
The checkup is not going so well.
Do you think copper is delivering a warning about stocks, or should investors not sweat it?
Vote in our poll and make your voice heard!
Is gold a valuable asset or a shiny relic from the past? That question reflects not just different opinions about a particular investment but a fundamental conflict in financial views.
Schiff, CEO of Euro Pacific Capital, is a well-known lover of gold—and its horrific plunge on Monday didn't change his mind one bit. Instead, he viewed it as a buying opportunity.
(Read More: Gold Settles Up After Prior-Session Plunge)
"I've been buying gold for about 12 years now," Schiff said. "I always buy more when the price is declining, because I'm confident that the price is going to continue to rise."
So what will drive it higher?
"These paper currencies are losing value, and people are going to look for a store of value," Schiff said. To him, that store of value will be gold.
Stocks rallied near session highs Tuesday, after major averages saw their biggest drop this year, boosted by a batch of upbeat earnings results and some better-than-expected economic reports.
(Read More: Look for More Downside on Stocks)
Brent crude futures were down $1.10 at $99.53 per barrel. It earlier hit $98.00, the lowest since July 2012.
U.S. light, sweet crude was down 69 cents to $88.02 a barrel after hitting a low of $86.06, its weakest since December 2012. Both were set for their longest losing streak since December.
Gold continued down its slippery slope on Monday and into Tuesday morning, as the market reached a low of $1,321.50.
After its steepest drop in 30 years, investors are finding value at these low levels, as the market is trading $70 up from the low and just below $1,400.
(Read More: Gold Rebounds After Previous Sessions's Rout)
On Monday morning, gold reached just above our first resistance at $1,428 before reversing course and continuing lower. Yesterday's early $1,385 low was taken out later in the session, as margin calls caused further liquidation.
It is no secret that gold is a fast market right now, and can trade $10 to $20 ranges in a less than a minute. We suggest using options to play this market right now, to make it easier to define your risk.
We expect to see some support at $1,355 to $1,360. The morning's high is just above $1,400—if we close back above here, it will signal a possible slowdown and consolidation. A close back above $1,424 to $1,428 will likely signal a consolidation higher, as investors find value. The major upside target is $1,474 to $1,478, and the major downside target is $1.300.90.
It goes without saying that we will be watching this market closely.
Markets trade in trends. On Monday, that trend flipped to negative.
So why was it such a pivotal day for determining short-term market direction?
The list of negative market factors begins with the dramatic sell-off in gold and other commodities. A market move of such magnitude, regardless of the underlying rationale, tends to be negative for the market, as the perception of instability pushes people into a risk-off mentality. Also, weak numbers out of China and Germany should add to the market weakness. The domestic terror event in Boston will also hurt overall sentiment.
After a 14 percent gain since Jan. 1, it is apparent that equities are due for a market pullback. If the current bounce in June S&P E-mini futures carries them up to 1,564, I would consider it a sell opportunity, with an objective of 1,532. A settle above 1,571 would stop me out of the trade.
U.S. drivers could see a further decline in gas prices at the pump, courtesy of world oil markets.
Crude oil on Monday hit its lowest level for the year. The tumble in black gold is leading to lower gas prices that may provide modest pocketbook relief just as the summer driving season arrives.
Halting economic growth in both the U.S. and China – the world's top two energy consumers – has sparked a deep sell-off that has driven Brent crude to a nine month low near $100 a barrel, with U.S. crude hitting its lowest since late December below $89. Analysts are concerned that sluggish global growth will undermine demand for oil.
Over the last three trading sessions alone, crude oil has lost over $5 per barrel, or approximately 6 percent of its value. So what's behind this move, and where is the bottom for Texas tea?
(Read More: Brent Crude Oil Tumbles Below $101)
Driving this move are the simple fundamentals of supply and demand. Last week, the Energy Information Administration once again downgraded its forecast for crude use around the world in 2013—and that was the third downgrade in the last few months. China also imported oil at a slower rate, which could be a sign that its economy is slowing. Meanwhile, Europe continues to struggle, and demand for Brent crude has also declined.
So while U.S. production has been strong, demand for gasoline and other crude products has been weak. The bottom line is that barrels of crude oil are starting to pile up, and that can only mean a drop in price.
However, I would be remiss if I did not mention the geo-political front, with North Korea causing the world the most stress at this point. I do not foresee a disruption in the supply of crude, or for that matter, in the production, Even if the North launches a missile, it will most likely fall into the ocean. But I did say "most likely." If the scenario is worse than this, then you could see a spike in prices, at least in the short-term.
So where is the bottom in crude? The next support area I see is at $88 to $87.50. Under that, there is strong support at $85.50 to $85.
Crude could soon correct because its drop has been so fast—but after that, a test of these areas seems probable.
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