Dire Straits had some great albums.
One of my favorites was Love Over Gold. Today the stock market took that literally and loved stocks in dire straits over gold.
I don't have a long term bias one way or the other on gold. I just want to be on the right side of the trade.
One of the big things I noticed in my charts recently is the Yen. What does that have to do with anything right now? Well, follow my love struck logic and we'll see if you agree.
First of all, lets start on the weekly up top.
1) The weekly RSI recently registered a bear market low. Then, just to prove a point, it has not been able to muster strength and push higher above 60...confirmation?
2) Failed Price action. Price shot up on Sept 13th, couldn't hold. Went down and fell through support. Recently it continued and fell through the 10 week MA which is the red line. The Blue uptrend line looks weak here and the 40 week MA sits just below so maybe that could help. Check out the pinching on the Bollinger Bands marked by blue arrows.
3) The big price picture is this head shoulders top pattern. Look how severe the price broke in early 2012 after it fell below the 10 week line.
4) the MACD is a perfect MACD shape relative to a Head/ Shoulders top. Lower highs on each peak even though the centre price chart actually pushes up and made a higher high.
5) Lastly, the Full sto's struggle here. No upward Momentum.
OK. Lets look at the Daily. Early October the trendline was tested and $JPY closed at the trendline. Today, $JPY dropped below and spent all day trying to climb back up but could not regain the trendline. There is horizontal support, denoted by the dashed line. Today was the fourth test.......
This looks incredibly weak to me. So what does this have to do with gold? If the $USD goes higher, this puts pressure down on the commodity sector. If the Yen falls to the neckline of the H/S trendline, we can expect a big 7 or 8 cent move down. On this chart it is shown as 7 or 8 Dollars from 127 to 120. More importantly, it could fall quickly if the collapse after the head was an example. The very long term target ( over 2013 as an example) off a top like this wold be a $JPY around 102.....YIKES!
So it could be the dire straits of the Yen, that helps support the $USD. Would this create a love for a beaten down stock over the always shiny gold?
Regarding todays rally. One note. I usually find the overnight premarket has a 100 point Dow pre built into it, just from shortcovereing. The fact that today took most of the day for the Dow to gain 100 points and the Nasdaq risk on market gained less as a percentage compared to the Dow a negative. Today was a nice move up but so far I record it as a weak bounce off the 50 DMA. No real volume saying jump on this train. It was not enough to get me excited.
So, I'm not bullish on stocks here either. But I am bearish on gold and silver until the $USD stops moving higher. My belief is it will go higher for a while but that is what makes a market.
My chart tomorrow is a serious long term confluence of technical events that bears watching to see which way it all plays out. So far it says $USD up, $GOLD, GDX, $SPX, $XOI, $WTIC lower. Check your charts before you read mine (weeklys) and see if you can build a confluence of events and trendlines relating across the group. I'll cover my scenario in tomorrows blog. Its a don't miss.
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Greg Schnell, CMT