Remember This Relationship
Dollar Weakness = Gold
Strength
Despite a nice move up in recent weeks the dollar
appears to be falling victim to gravity again. Despite this, the stock and bond
markets put in a solid performance. Like most things in the market recently
logic and standard relationships fall by the wayside. So while the markets have
managed to get above recent resistance yesterday, the tone yet again was
guarded, albeit bullish. I have given this a great deal of thought recently.
Is the recent price action normal in historical terms, meaning methodical price
action? If the answer is yes, we need to recognize that the last 5-7 years were
the exception, not the rule in terms of intra-day volatility. The other
possibility is that the market is simply being forced higher by larger
institutions that have to be long by decree of their prospectus. This is sheer
speculation, but I for one find the current market odd, at best.
The key distinction is that this has little
impact on investors, their only goal is direction over the long run, they care
little about pull-backs here and there. As traders, this scenario presently us
with a challenge, isolating entry points in a market that offers only a few each
day. Notice how many times a stock grinds higher with little to no pull-back
despite the over-bought condition and no confirmation from the S&P futures?
Look at a 1-minute chart of the S&P’s and C
and TXN in the opening hour yesterday.
There were several occasions where there was a temporary disconnect. This is
frustrating to say the least, and reduces the number of good set-ups available.
Let me clarify: If the S&Ps are trending up on
their 1-minute chart, begin to pull-back towards the 20 ema, while the
stochastics are also resetting, yet the stock you are trading continue to go
higher, by the time the S&P’s make their next thrust higher, there is no way you
can justify a long entry on your stock, it never pulled back. So, despite many
instances where you could have ignored this and bought anyway, over time this is
a losing strategy. The result, an apparent disconnect and fewer swings at the
plate. The solution is selectivity and increasing share size when appropriate.
Turning to the gold stocks. Not only did they
begin to trade better intra-day yesterday as a result of the
DXC, NEM
actually offered us investors eager to own gold a great opportunity to add to an
existing position or establish a new one. Take a look at the charts below:
Watch the 91.17 on the
DXC, if that level gives, gold stocks should attempt to make new
52-week highs, and just maybe, the stock and bond markets might pay attention.
FX update. On Monday evening I went short the
USD versus the Canadian Dollar (CAD) at
1.3113. The trigger was technical, however, now with the weakening dollar, a
robust gold market (good for Canadian companies), it seems like a solid
longer-term set-up. I will keep you posted.
| Support/Resistance Numbers for S&P and Nasdaq Futures |
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As always, feel free to send me your comments and
questions.