Originally published by Chamber of Merchants
Economic Events
The US dollar was losing steam as it almost tested 100.6, falling short by rebounding off 100.71 on the US Dollar Index.
The positive news that sent it rebounding to a high of 101.37 was that home sales in the US were better than expected:
However, interestingly, while the dollar caught a bid, it did fail to achieve a higher high. The dollar was sold off, more aggressively than before and has resumed the downward trend in the most recent bull flag:
This bull flag formation is a continuation pattern. It means that the dollar is in this low-key downward trend while it waits for news that is good enough to propel it to a higher high. That news really starts tonight:
Gold
I know there was some celebration yesterday when gold hit $1220, especially for those traders with leveraged funds. However, I was very clear in several posts that unless gold breaks above $1230 with the 49 day TEMA, it would not be considered to be rebounding yet. In the 1 hour chart below, Gold failed to hold the upper trading channel. However, it did not drop to a lower low, which indicates a divergence and accumulation. Ultimately it is pretty much inversely correlated with the US dollar. Dollar up, gold down, dollar down, gold up. That is the current trade, however, that relationship can possible be reset later in the year.
The other rebel at the playground is the euro. I said yesterday that I think it may have bottomed. When the dollar rallied it quickly lost its gains, however, it rebounded strongly which further gives me confidence that the euro is gaining a footing to reverse its weakening against the US dollar:
US Gold Miners
I like to look at the US gold mining ETF’s since it indicates the sentiment toward gold producers. The gold shorting ProShares UltraShort Gold Miners (NYSE:GDXS) has dropped another 0.5%
Meanwhile its mirror ETF, the Gold Miner’s Index GDX (NYSE:GDX) has ended positively, albeit marginally:
The strongest gold is demonstrated in the 3x Gold Movement Direxion Daily Junior Gold Miners Bull 3X Shares (NYSE:JNUG)which ended almost 5% higher (quite disproportionate):
We can’t end this morning’s report without noting that the US stock market is at an all time high… again. One thing about the stock market is that it is a confidence and trend machine. If everyone believes it, it is. So for, even though a correction is due, it appears that money is piling into the stock market at higher highs. The bond market has also relaxed which has calmed the concern about a mortgage rate blowout. I’d still exercise caution as the stock markets near their trend line resistance zones:
As a Merchant, I don’t want the stock market to crash. The best scenario would be confidence in the stock market, while commodities rally. This would be a platform on which gold and silver producers would attain higher P.E ratios.
But, it all depends on the the economic indicators tonight and later this week. We may see the bond market resume its sell off. If this occurs, we may see some major Fed surprises such as QE4 (money printing) to stop the bond market from selling off.
As a left field theory, the record highs in the stock market, while the bond market teeters on the edge of a sell-off, may be a setup to pressure Janet Yellen into a direction. If the Market starts to crack at record highs, while the bond market starts to leak again, we may see the Federal Reserve bending to the will of Wall Street to stave off a market tantrum.
Again, while I am not doom and gloom, I do believe the obvious is not the entire truth.
Remember, remember, the 14th of December…