After writing about a potential stock market crash yesterday, the THREE charts I advised readers to keep tabs on are back in play! Gold price is getting hammered, down 2.7% at time of writing while Silver is down 4.8%, due to a rise in the US Dollar.
The US Dollar is breaking out right now. 92.80 is the key zone, and I am watching for the next 4 hour candle to close above this area to confirm the breakout. From now until 10 am PST, when the 4 hour candle closes, the US Dollar could very well sell off. But right now, it is strong. For forex traders look at NZDUSD and USDMXN. Some nice set ups there.
Why this move? Retail Sales for August posted a surprise gain. Retail sales rose 0.7% in August versus expectations for a 0.8% decline. The market is taking this as ‘oh one more good reason for the Fed to begin tapering sooner!’. Especially after inflation coming out at 5.3% for the month of August. Still a large number, but it was lower than expected by analysts. Strong data means the economy is recovering? Hold on to your hats, we still have employment issues. US Jobless claims actually increased for the week ended Sept.11. Weekly jobless claims increased to 332,000 versus the estimate for 320,000.
I am more leaning towards the fear side of things. Money is running to cash and the US Dollar for a risk off move. Of course there is one other chart we need to look at to confirm this. Bonds.
I highlighted TLT in yesterday’s post. We had a triangle breakout, and expected a retest of the trendline break. Just as we are currently on the 4 hour chart posted above. Again, we will need to see how this candle closes in a few hours time. But if bonds and the US Dollar are rising together…we have our fear signal. Stock markets will get clapped.
Can our trendline on the S&P 500 still hold? I still want a close above 4520 to ease sell off fears.
There are two candidates for fear. One is the China Evergrande situation. That was the Black Swan I referred to in yesterday’s post regarding a market drop. We found out yesterday that Evergrande suspended trading of bonds. Things are happening. The Hang Seng itself is breaking below a major support area.
The other source for fear has to do across the pond. A potential European energy crisis. A record run in energy prices which is not expected to end anytime soon. This has the potential to last through winter, and I touched on this issue this week in my Natural Gas piece. That inflation doesn’t look so transitory.
I said I would talk about Gold didn’t I? For this, I want to go down to the 4 hour chart.
A lot of stuff drawn here but let’s take it from left to right. Gold was in an uptrend with multiple higher lows. The blue rectangles point out all the higher lows on the uptrend move. According to market structure, as long as we hold above the previous higher low, the uptrend remains intact.
Over on Equity Guru’s Discord channel, and probably in a previous Market Moment post too, I highlighted how a break above $1830 was super important for more upside. This didn’t happen. Instead sellers jumped in and took us below 1810. What was once support now becomes resistance.
The first red rectangle I have drawn out is our first lower high in a downtrend. As long as Gold remains below $1786, we can make another lower high. I have drawn out a hypothetical case. The lower high doesn’t need to print exactly at $1775, it is just for illustration purposes. Maybe price bounces back up to $1786, or we just bounce a small amount here and then roll over again.
$1730 is the major support area and we should expect this downtrend on the 4 hour to test those levels. Once this happens, we can look for some support and be bullish on Gold price again.
Just an observation: we have still seen Stock Markets and Gold working in correlation. Bitcoin too. A positive correlation. When Stock Markets rise, Gold and Bitcoin do as well. When Stock Markets fall, Gold and Bitcoin do as well. So let’s keep tabs on the US Dollar, Bonds and the Stock Market. Gold and Silver looks likely to continue lower if the Market breaks that major trendline.