Gold, Oil, Currencies & Interest Rates
By Colin Twiggs
May 22, 2007 6:00 a.m. EST (8:00 p.m. AEST)
These extracts from my trading diary are for educational purposes and should not be interpreted as investment advice. Full terms and conditions can be found at Terms of Use.
Gold
Spot gold broke down through the long-term trendline, warning that the trend is weakening. Narrow consolidation over the last few days is likely to resolve in a downward direction, which would signal a test of support at $630. The primary trend remains up. In the long term, a rise above $690 would signal a test of the upper trend channel; while a fall below support at $630 would signal that the trend has reversed. Probabilities are about even - when we consider that stronger crude prices should support demand for gold.
Source: Netdania
Crude Oil
June Light Crude is rising sharply after respecting support above $60. Price has formed a descending broadening formation; breakout would be encouraging, but these patterns are prone to pull-backs and are unreliable for trading purposes. A test of resistance at $68 would be positive, however, especially if followed by a narrow consolidation or short retracement.
Currencies
The euro failed to re-test the 2005 high of $1.37 and is retracing towards the first line of primary support at $1.34. Failure of support would break the long-term trendline, signaling trend weakness and a test of primary support at $1.29. Respect of support remains likely, however, signaling continuation of the up-trend.
Source: Netdania
The dollar broke out above the bearish rising wedge against the yen and is headed for a test of long-term resistance at $122. Narrow consolidation below resistance, or a short retracement of no more than 3 days, would be a bullish sign. In the longer term, failure of support at 114.50 would warn of a major correction; while breakout above 122 would complete a bullish ascending triangle pattern on the weekly chart, with a calculated target of 134 (122 + [122-110]).
Source: Netdania
The Australian dollar's recent flag formation failed and we are now facing a test of the May low, just above 0.8150. If support holds, expect a rally to test 0.84; but failure is equally likely and would test the first line of primary support at 0.80.
Source: Netdania
Treasury Yields
Ten-year treasury yields show early signs of an up-trend after completing a higher low at [b]. A rise above 4.90% would complete the signal, with a higher low in the larger time frame. The yield differential (10-year minus 13-week treasury yields) recovered to above zero: a positive sign.
Short-term treasury yields reversed sharply and are headed for a test of the new resistance level at 4.75%. Failure would signal that all is well (someone had briefly fallen asleep at the wheel); while respect of the new resistance level would signal a policy change from the Fed, increasing liquidity in the economy. Prospects of further rates hikes appear minimal and rates may remain constant for some time.
Stock Markets
The S&P 500 is testing resistance at the all-time high of 1530. The up-trend is accelerating and a new all-time high is expected within a few days; narrow consolidation or a short retracement would be a further bull signal. Weekly volumes have doubled in the last 3 years - a sign that the market is heating up.
Wright Model
Probability of recession in the next four quarters has receded to 44 per cent according to the Wright Model.
A pint of sweat will save a gallon of blood.
~ General George S Patton Jr.
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