Stocks and Gold Likely to Battle for Control of Investment Dollars
Stocks are trading higher overnight and the Dollar is trading mixed. Without
any major U.S.
economic reports this morning and the Fed meeting on Tuesday, trading could be
light and directionless today. On the other hand, sometimes thin trading
conditions trigger wild swings so investors should be on their toes so as to
not get caught on the wrong side of the market.
With Fridayâ€™s Non-Farm Payrolls report behind them, traders will have to wait
until Tuesday afternoon before getting any fresh market driving economic news.
Although Fridayâ€™s employment data was disappointing, investors still are not
sure if it was weak enough to warrant an immediate change in the Fedâ€™s monetary
policy. Pessimistic traders believe the Fed has enough evidence of an economic
slowdown to renew its quantitative easing program. Optimistic traders think the
Fed will alter the language a little in its policy statement, but hold off for
another month before reintroducing stimulus.
Two markets to key on before the Fed decision will be December Gold and the
September E-mini S&P. Gold as surged recently following a long sell-off on
speculation that equities may break. Both markets compete for the same
investment Dollar. Stocks have maintained an upward bias but have been
rangebound because of indecision about the status of the economy.
This morning it looks as if equities are once again looking bullish while
gold is trading flat. With gold nearing a retracement level and equities poised
to break out to the upside, watch for a rally in stocks to trigger a
profit-taking break in gold. According to the charts, only a break through last
weekâ€™s lows in the equity markets can help gold maintain its upward bias. One
of these markets has to give in to investor demands. In summary, higher stocks
should lead to a weaker gold market.
December Gold surged to the upside on Friday, finishing the week in a strong
position as traders bought the metal as a hedge against a potential drop in the
equity markets and because of the weakness in the Dollar.
The close put the market in a position to test a major 50% price level at
$1215.00. This price represents a retracement of the $1270.60 to $1159.30, June
to July sell-off. After briefly piercing a downtrending Gann angle at $1212.60
today, the market settled back indicating there may be sellers up here. This is
also a sign that more sellers may show up once the market completes the 50%
retracement. Long traders should watch for a technical bounce at this level.
The chart pattern suggests there may be a pull-back to $1186.30 sometime next
The strong surge in the September T-Notes and T-Bonds is an indication that
investors are betting on new language in the Fedâ€™s policy statement following
this weekâ€™s August 10 meeting.
Investors expect the Fed to change the language it has been using to
describe the length of the current economic slow down. In addition, investors
are looking for the Fed to announce the renewal of its asset buyback program.
Iâ€™ve said this a countless number of times, but Iâ€™ll say it again, the bonds
are the best indicator for the economy. As long as the Treasuries continue to
maintain their higher-top, higher-bottom formation, look for the economy to
Stocks were under pressure since the release of the jobs data early Friday
morning. The markets sold off as the news was what not what investors expected,
however, the ability to hold the markets in a range most of the day indicates
that it was only disappointing and not earth-shattering.
Despite trading lower on Friday, the markets managed to hold on to their
gains for the week. The rally, however, does appear to be running out of steam.
Only a follow-through to the downside will confirm this analysis. If Fridayâ€™s
low holds, then stocks could begin a breakout to the upside.
The British Pound is hugging a key Fibonacci retracement level against the
Dollar amid speculation the Fed will announce a renewal of stimulus measures to
boost the economy at its FOMC meeting on Tuesday.
is continuing its rally from Friday after forming a new main bottom at 1.5819.
Trading has been light with the range tight as the market toys with a major
retracement level at 1.5967. Early last week the Pound made a top at this
level, leading to the break to 1.5819. The key to sustaining this rally will be
a close above 1.5967. Intraday traders should watch to see if support can be
established at this price level if it can be regained. The uptrend will remain
intact as long as the new main bottom at 1.5819 holds as support.
Concerns about the U.S.
economy weakening are helping to make the British Pound an attractive
investment at this time. While the U.S.
has been struggling to maintain growth, the U.K. economy has remained
Investors have been optimistic about the U.K. currency since the new
coalition government took control in May. Although they immediately proposed
spending cuts and tax hikes, investors have embraced their decisions as
necessary for the economy. The fear at the time was that a growing spending
deficit would lead to a downgrade of U.K. debt.
Although the U.K.
economy remains on path toward sustaining its recovery, some investors still
feel that some stimulus may be necessary to maintain growth. They cite the tax
hikes and austerity measures as the main reasons why the economy may stall
during the third and fourth quarters.
A Fed decision on Tuesday to reintroduce stimulus measures should be enough
to propel the British Pound higher. Should the Fed back away from a
reintroduction of stimulus measures then look for the Sterling to weaken as speculators reassess
their positions. The Fed is either going to act now because they see the
situation worsening or wait another month because its interpretation of the
economic data does not warrant immediate action.
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
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