Gold’s next move should be a big one, here’s why
FX:
Gold has reached our targeted top today and the reversal may
be in. Readers will recall that back in August we said gold was completing a
clear “ABCDE” triangle pattern which had a targeted breakout of $480 or $500.
When gold hit $480 last month we called a reversal. But the day gold reversed
back above $460 we said to expect a FINAL move to $490-$500 to complete the
“five wave” move from the August breakout. This looks to be a “fifth of a fifth
of a fifth” degree move, which means a significant retracement is in order.
Meanwhile, the dollar broke trendline resistance this morning
at 92.10 but is now pulling back after testing last week’s highs at 92.30/50.
The ECB is expected to raise rates this week so a little back tracking in the
dollar should be expected as traders position to buy the rumor. Then we expect
the euro to weaken again (dollar rise) after the ECB’s rate hike.
The reason we are not swayed by the ECB’s decision to raise
rates is that the economy is moribund and practically every institution has said
publicly or privately that they should not raise rates. This we think is simply
a symbolic move to show that they are independent.
As we said last week, “Even if the ECB raises rates and the
Fed ends its cycle early next year at 4.5% we will still have the same interest
rate differential that has been driving the dollar higher all year long.”
From a technical perspective, the dollar appears to have ended
a clear “ABC” decline from last week’s highs which we labeled “wave 1.” Note
that two weeks ago we expected this pullback and last week we added to our long
USD/CHF position with buy orders sitting in at 1.3070. (See chart below).
Stocks:
We’ll issue an update on stocks today. Recall that three weeks
ago we warned that a move in the Dow Industrials through key resistance at
10,600 would “put the wind at the bulls’ backs as the end of the year is
seasonally bullish.” But as we also said, the internals of the uptrend is
weakening as fewer stocks are participating. This is the hallmark sign of a top
and and as we showed for three weeks in a row, the smart money is definitely not
participating. As stocks rise on narrowing breadth will look to go short around
11,000 if the opportunity looks compelling.
Bonds:
Bonds have more room to the upside to run after holding some
key support two weeks ago amid rampant bearishness. We warned then that bonds
were due for a bounce after a clear ‘five wave’ move up in yields (down in
bonds). But the larger uptrend in yields from September’s low of 4.0% remains
intact as support at 4.4% has not yet been violated. Yields look to be trying to
turn higher today and this would be consistent with our work that shows yields
had bottomed last month just as the 30-month cycle in Treasury yields bottomed
which means we should expect higher yields over the coming months if this holds
any sway. Key support is at 4.4%. Only a sustained move below 4.4% would suggest
a larger retracement at hand.
Regards,
Jes Black
FX Money Trends
613 4th St Suite 505
Hoboken, NJ 07030
Tel: 646.229.5401
Jes
Black is the fund manager at Black Flag Capital Partners and Chairman of
the firm’s Investment Committee, which oversees research, investment and
trading strategies. You can find out more about Jes at
BlackFlagForex.com.
Prior
to organizing the hedge fund he was hired by MG Financial Group to help
run their flagship news and analysis department,
Forexnews.com. After four
years as a senior currency strategist he went on to found
FxMoneyTrends.com – a research firm catering to professional traders.
Jes
Black’s opinions are often featured in the Wall Street Journal, Barrons,
Financial Times and Reuters. He has also written numerous strategy pieces
for Futures magazine and regularly attends industry conferences to speak
about the currency markets.