Is Gold Getting Ready to Break Resistance?

Patience has been a requirement for those that have been bullish on gold. Having dropped nearly 30% last year, the shiny commodity was one of the worst performing asset classes in 2013. That is exactly why its been on my radar for this year. With it’s historically low sentiment readings and lack of interest in the trader community, gold is an asset that could shine in 2014. We just need the right setup.

I’ve been watching the 150-day moving average as support and resistance for gold, (which is the 30-week moving average as show on the chart below). I’ve marked arrows to show past instances where gold has met this moving average over the last couple of years. In 2012 as gold began to consolidate the commodity began to whipsaw above and below the moving average before ultimately beginning its decline. During the drop in ’13 we hit the 30-week (150-day) MA three times as it smacked buyers in the face. Price is now back up against this level and I’m watching to see if gold bulls have what it takes to break above and send gold prices higher as it begins a new up trend.

Taking a look at momentum, specifically the Relative Strength Index (RSI) indicator, we can see a positive divergence was been put in place as price created a double bottom just under $1200 and the RSI put in a higher low. With the recent rise in price, the momentum indicator is now testing resistance at the 50 level.

If we see price break above its moving average while momentum breaks above its own resistance, I think that could be very bullish for this precious metal.

GOLD

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Weekly Technical Market Outlook 1/6/2014

Happy New Year! I hope everyone had an enjoyable holiday. I apologize for a lack of posts last week, I was visiting family in Florida and tried to stay as ‘unplugged’ as possible – which for me is extremely difficult. But I’m back home and writing this as Indianapolis gets a blizzard, how I miss the Florida warmth! We closed down roughly 0.5% last week as 2014 trading got underway, the performance over the next few weeks is viewed by many as critical due to the strong relationship between January’s performance with an over 80% track record of predicting if the year finishes in the green.

Equity Trend

We continue into 2014 with the U.S. equity market ($SPX) continuing its up trend. While we saw a slight dip, it did not take us near any major support levels. The slope of the current up trend is still weakening which hasn’t been a bullish sign historically. If a new high can be made soon then we could see slope correct and rise back above the moving average I referenced in the previous post.

 

Equity Trend

EAFE

It has been a few weeks since we last looked at the iShares EAFE ETF ($EFA). Towards the end of December we began to see things pick up for foreign markets, with $EFA beginning to outperform the S&P 500 ($SPX) for a couple of weeks. I had last highlighted the potential resistance level being at the October high, traders had no problem clearing the previous high as the advance took momentum to an ‘overbought’ level on the Relative Strength Index (RSI) (top panel of the chart). While breaching 70 is not an immediate warning sign, traders have had difficulty once RSI broke above this level over the last 12 months, for example in May, September, and October. It’s important to note that a bearish island candle pattern was created last week, with price gaping higher and then gaping lower the following day. This is a potential sign of exhaustion although it has yet to be confirmed with a strong move lower. I’ll be watching the support level I’ve marked with a red line on the RSI indicator, which would indicate we are in a bullish range for momentum and that the up trend in $EFA may still be intact.

EAFE

Equity Breadth

We saw positive movement in equity breadth over the last couple of weeks. The short-term negative divergences I highlighted two weeks ago have been corrected as both the Advance-Decline line and the Percentage of Stocks Above Their 200-day Moving Average have both risen. While the Advance-Decline line has followed the equity market to new highs, the measure of breadth in the bottom panel of the chart, the percentage of stocks above 200-MA, has run into resistance off the May and October highs.

Breadth

Equity Momentum

Like we saw in breadth, one of the divergences in momentum has corrected itself – the Relative Strength Index. The RSI indicator was able to break above 70 while the MACD and the Money Flow Index continue to divergence from the up trend in the S&P 500 ($SPX).

Momentum

 S&P 500 60-Minute

Traders were able to keep the RSI indicator above the ‘overbought’ level of 70 for a few days of trading on the 60-minute chart until price began heading lower recently. Like on the daily chart above, the MACD indicator has been diverging from price on the intraday chart as well. Price is now bumping up against its 50-1hr Moving Average. This is the level I’ll be watching on a short-term basis this week if we are able to see price continue to advance.

SPX 60-min

Gold

In this Yahoo! Finance article of 2014 market predictions I commented that I would be watching commodities, specifically agriculture and precious metals in 2014 for a potential trend change. I’m not predicting that commodities will be a strong performer this year, but they were beaten down pretty hard in 2013 with sentiment at historic lows. This could help propel certain portions of the asset class higher if things begin to improve in the price action. Today I want to look specifically at gold ($GC_F). Last week we created a double bottom with the June ’13 low at $1,175. With pricing finding support at this previous low the Relative Strength Index was able to stay above 30 and create a positive divergence as it made a higher low. The momentum indicator is testing previous resistance right now and if buyers don’t get scared, then we could see RSI breakout. Turning the focus back to price, we are still in a clear down trend with price under its long-term and intermediate-term moving averages. I’ll be watching the 50-MA as well as the trend line marked in green on the chart below. It seems no one is bullish on gold right now, which is a great reason to keep an eye on this shiny metal and if we see a short squeeze that sends price higher.gold

Major Events This Week

This week we get more attention put on the Fed. With the latest announcement of the Federal Reserve tapering their stimulus program, traders will likely be eager to gain more detail from the FOMC minutes. Here’s are some of the major announcements coming out this week:

Monday: ISM Non-Manufacturing Index
Tuesday: International Trade
Wednesday: FOMC Minutes
Thursday: Jobless Claims
Friday: Non-Farm Payroll Report
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Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Gold’s Relationship With Stocks

Last week I looked at some charts of gold ($GC_F) and the levels of support and resistance I’ve been keeping an eye on. This week we had broken through support but with yesterday’s bullish move and today’s strength it looks like we are back above the trend line I discussed. Today I want to dive into the relationship between gold and the S&P 500 ($SPX).

Below we have a chart of the ratio between gold and the S&P going back to 2004. When the green line is rising, that tells us that gold is outpacing the performance of stocks (via the S&P 500) and vica versa when it’s falling. You’ll notice that we started off 2013 with a break of the orange dotted line, which had been support off the 2007, 2008, and 2012 lows. This told us that we should expect stocks to outperform gold going forward, which is indeed what’s taken place.

With the strong relative performance in equities in relation to gold, we are now approaching another long-term trend line in the ratio of the two markets. The sold blue line is a trend line off the 2005 and 2007 lows. If gold continues to weaken against the equity market, then we could eventually see a test of the 2008 low, shown with the dotted blue line.

gold SPX

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.