Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Update - Nadeem_Walayat
2.Will Deutsche Bank Crash The Global Stock Market? - Clif_Droke
3.Gold Price In Excess Of $8000 While US Dollar Collapses - Hubert_Moolman
4.BrExit UK Economic Collapse Evaporates, GDP Forecasts for 2016 and 2017 - Nadeem_Walayat
5.Gold Stocks Massive Price Correction - Zeal_LLC
6.Stock Market Predicts Donald Trump Victory - Austin_Galt
7.Next Financial Crisis Will be Far Worse than 2008/09 - Chris_Vermeulen
8.The Gold To Housing Ratio As A Valuation Indicator - Dan_Amerman
9.GDXJ Gold Stocks - A Diamond in the Rough - Rambus_Chartology
10.Gold Boom! End Game Nears As Central Banks Buying Up Gold Mining Companies! - Jeff_Berwick
Last 7 days
US Economy GDP Growth Estimates in Free-Fall: FRBNY Nowcast 2.26% Q3, 1.22% Q4 - 24th Sept 16
Gold and Gold Stocks Corrective Action Continues Despite Dovish Federal Reserve - 24th Sept 16
Global Bonds: Why Our Analyst Says Things Just Got "Monumental" - 24th Sept 16
Where Did All the Money Go? - 23rd Sept 16
Pension Shortfalls Could Be 4X To 7X Greater Than Reported - 23rd Sept 16
Gold Unleashed by the Fed - 23rd Sept 16
Gold around U.S Presidential Elections - 23rd Sept 16
Here’s Why Eastern Europe Is Doomed - 23rd Sept 16
Nasdaq NDX 100 Big Cap Tech Breakout ? - 23rd Sept 16
The Implications of the Italian Banking Crisis Could Be Disastrous - 22nd Sept 16
TwinLakes Theme Park Summer Super 6 FREE Return Entry for Real? - 21st Sept 16
Has the Silver Bullet Run Out of Fire Power? - 21st Sept 16
Frack Sand: The Unsung Hero Of The OPEC Oil War - 21st Sept 16
What’s Happening With Gold? - 21st Sept 16
Gold vs. Stocks and Commodities, Pre-FOMC - 20th Sept 16
BrExit UK Inflation CPI, RPI Forecast 2016, 2017 - 20th Sept 16
European banks may be more important than the Fed this week - 20th Sept 16
Gold, Silver, Stocks and Bonds Grand Ascension or Great Collapse? - 20th Sept 16
Mass Psychology in Action; Instead of Selling Gilead it is Time to Take a Closer Look - 20th Sept 16
Hillary - Finally Well Deserved Recognition for Deplorables - 20th Sept 16
Fascist Business Model: Reich Economics - 19th Sept 16
Multiweek Correction in Gold and Silver Markets Continues - 19th Sept 16
Stock Market May Turn Ugly This Week - 19th Sept 16
China Is Digging Itself into a Deeper Hole - 19th Sept 16
Yellen’s Footnote 8 Would Put Interest Rates on Autopilot - 19th Sept 16
Central Bank Digital Currencies: A Revolution in Banking? - 19th Sept 16
UK Government Surrenders to China / France to Build Nuclear Fukushima Plant At Hinkley Point C - 19th Sept 16
Stock Market Correction Already Over? - 18th Sept 16
American Economics - 18th Sept 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Power of the Wave Principle

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