Chart of the Day: More “Inside Prints”

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The S&P 500 printed its third “inside day” in a row yesterday which suggests a very indecisive market.  Generally speaking, the trend preceding any consolidation patter such as inside days, is more likely to continue than reverse out of the pattern.

 

Chart of the Day: Dow Weakness Ahead?

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The Dow Industrials showed signs of technical weakness in the form of a bearish “outside reversal” on Wednesday that could be forecasting a profit taking pullback in the index. A violation of 19,748 would be near-term bearish from a charting standpoint.

 

Chart of the Day: 10 Yr Yield Screams to New Multi-Year High

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The 10 Year Note yield screamed to a more than 2 year high yesterday in response to the more hawkish than expected Fed Announcement.

 

Chart of the Day: Key Dollar Support Ahead of the Fed

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The bull market in the dollar index remains very much alive, but if the Fed surprises dovishly today, it is possible that technical and psychological support at 100 is violated which would lead to a pull back into the upper-90s.

 

Chart of the Day: Copper Breaks Uptrend Support

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Copper futures finally violated the post-election uptrend yesterday suggesting that some profit-taking will likely occur in the coming sessions. $2.50 should be looked to for initial support in the US futures contract.

 

Chart of the Day: Oil Poised to Break Trading Range

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WTI crude oil futures surged last week, but have yet to materially break out of their multi-quarter trading range between $40 and $50/barrel. Today, focus will be on the weekly EIA inventory report to see if the data can help propel the energy market back to fresh highs.

 

Chart of the Day: “The Doctor” Extends Gains

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Since the unexpected Republican sweep in the US elections, the combination of strong growth expectations and more recently, upbeat Chinese manufacturing  data has spurred an impressive rally in copper futures.

 

Is Gold a Buy? No, Not Yet ( Need Inflation)

Gold futures declined yesterday, initially thanks to a stronger dollar; however, a reversal in the greenback saw precious metals close well off the worst levels of the day. Gold futures declined 0.34% on the day.

It is clear that the precious metals market, specifically gold, has gotten crushed since the election, and there are a lot of investors wondering if now is the time to buy.

The simple answer is, “Not yet.”

Longer term, given The Sevens Report is positive on inflation, gold will rally again, but The Sevens Report needs to see higher inflation to offset two strong headwinds on gold near term.

First, a lot of this reversal was thanks to the unexpected election outcome that initiated the rally in the dollar to multi-year highs. When the dollar rallies hard, gold will fall every time. Going forward, the dollar rally will need to level off in order for the gold market to materially stabilize. The Sevens Report long-term upside target for the Dollar Index is between 106 and 107, so until The Sevens Report see those levels (or signs of a significant reversal in the greenback confirmed by some sort of fundamental altering event) the outlook for gold is not very bright… until The Sevens Report sees an acceleration in inflation.

Aside from the dollar, the real interest rate (nominal interest rates minus the inflation rate) has offered the best fundamental read for the gold market.

In the wake of the election, inflation expectations did not materially change; however, nominal interest rates surged in a big way. That resulted in a spike in real interest rates, and that’s very bearish for gold.

When inflation accelerates, and starts to outpace rising interest rates again, The Sevens Report will see gold as an attractive investment like it did earlier this year.

Remember, Treasuries were trading sideways this summer and inflation was firming, which led to declining real interest rates (which is bullish gold). But if the trend in interest rates is materially higher and inflation remains well contained, gold will likely fall further.

To be clear, gold and the dollar can rally together, just not while the dollar is moving as swiftly as it did post-election. If inflation shows signs of getting out of hand, and the Fed is perceived to be “behind the curve,” then gold can rally (because real interest rates will decline as inflation accelerates despite a rally in the buck).

Technically speaking, the trend is lower in gold, and there is not much support before the $1130-$1140 area. To the upside, retracements to resistance at either $1210 or $1225 should be normal throwbacks in an otherwise downward trending market.

Bottom line, gold is not a buy now. But as market conditions settle, The Sevens Report will look for the two key components necessary for a new rally in gold… the dollar leveling off and real inflation rates showing signs of declining as actual inflation edges higher.

Chart of the Day: S&P Rallies to New High, Momentum Remains Bullish

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The S&P 500 rebounded from morning losses to finish the session at yet another record closing high. The post election price action has been impressive and continues to strongly favor the bulls for the medium term.

 

Chart of the Day: Gold Holds On, Barely

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Gold futures continue to hold on to critical support in the low $1200’s for now, but if the dollar rally continues, it will likely end the short-lived bull market we pointed out back in April.