Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
The Five Elements to Creating a Something-for-Nothing Society - 24th July 14
Instability is the New Normal? - 24th July 14
Israel's Suicide Bombers Over Gaza - 24th July 14
EUR-AUD Heads Into The Danger Zone - 24th July 14
Tesco Supermarket Death Spiral Accelerates as Customers HATE the Mega Brand - 24th July 14
Ukraine MH17 Crisis - Best Remember Who Your Friends Are - 24th July 14
Three Reasons Why Gold Price and Gold Stocks Will Rise - 24th July 14
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

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

© 2005-2014 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

Free Report - Financial Markets 2014