Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

Euro Flag, Reversal Candlestick in Stocks and Gold

Commodities / Gold and Silver 2012 Dec 14, 2012 - 12:43 PM GMT

By: P_Radomski_CFA

Commodities

Yesterday we saw substantial declines in the whole precious metals sector (the only important exception was palladium that actually managed to close higher after a huge price drop earlier during the day) even though the Fed announced Wednesday that it would continue its monthly purchases of $85 billion in Treasury bonds and mortgage-backed securities. This makes it probable that the Fed announcement was already priced into the market, hence the lack of its reaction.


The Fed’s action is clearly bullish for gold, silver and other precious metals in the long run, but recent developments along with weak correlation between metals and the dollar can keep precious metals bulls awake at night. Let us then move on to today’s technical part to find out whether these fears are well-grounded. Today we’ll focus on two groups of assets that usually influence precious metals the most: stocks and currencies. We’ll start with the analysis of the Euro Index long-term chart (charts courtesy by http://stockcharts.com.)

A confirmation of the breakout above the flag pattern (which was a period of consolidation) has been seen in the chart. We expected this to be broken to the upside, and that’s what happened. The index did pull back to the support line and has moved higher once again. The situation is now more bullish than not, but we’ll wait for a move above the 132 level before stating that the outlook is indeed bullish for the weeks ahead.

Now, let’s move on to the general stock market.

In the long-term S&P 500 Index chart, the situation continues to be bearish for the short term. Based on the weekly closing prices, a “gravestone doji” candlestick pattern has formed this week. This is similar to the bearish shooting star candlestick pattern. Opening and closing prices being very similar are what create the “gravestone doji”. The implications of this candlestick pattern are exactly the same and are a bearish signal.

The bearish signs are actually doubled here because stocks reversed after moving to their 2008 highs and then reversing to the previously broken rising resistance line (several weeks ago). At this time, the outlook for the general stock market is bearish, but, with a support line at the $1,350 level, the downside seems to be quite limited.

Let’s now have a look at the intermarket correlations to see how the above chart could translate into future precious metals prices.

The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. This week, there are not many implications here for the precious metals sector. The short-term correlations are very neutral this week so we really can’t say much about the next week or two based on the currency and stock market charts.

The medium-term precious metals’ picture remains bullish as there are significant negative correlations between the precious metals and the USD Index (thus the positive situation in the Euro Index is positive also for gold). Positive correlation is seen between stocks and the precious metals, so the limited downside for stocks is a bullish factor for the metals in the medium term.

Summing up, the outlook for the Euro Index is more bullish than not which directly translates into a bearish one in the U.S. dollar, especially after what we saw on the charts for the U.S. currency in our article a week ago. Stocks have a short-term bearish outlook but the downside is limited. Both: the medium- and long-term perspectives are bullish. This is not due to an improvement in US economic indicators, however, but rather due to the steps taken by the Fed, which are likely to push nominal stock prices higher.

This does not directly translate to any precious metals price moves since correlations are quite insignificant with both markets over the past 30 days. However, when we take the medium term into account, the positive correlation between precious metals and the general stock market suggests that the limited downside potential in stocks as well as their positive medium- and long-term outlooks are bullish for metals. Since the medium-term correlation between precious metals and the dollar is strong and negative, the same bullish implications for the metals follow.

Thank you for reading. Have a great and profitable week

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold & Silver Investment & Trading Website - SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife