Gold threatens down-trend, US stocks find support

By Colin Twiggs
September 9th, 2014 3:30 am EDT (5:30 pm AEST)

Advice herein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.

Research & Investment: Performance update

ASX200 Prime Momentum strategy returned +22.64%* for the 12 months ended 31st August 2014 compared to +14.41% for the benchmark ASX200 Accumulation Index.

ASX200 Prime Momentum

The S&P 500 Prime Momentum strategy had a good month, gaining 5.98% in August. The strategy has been running live for ten months, since November 2013, and returned 15.46%* for the period, compared to 15.96% for the S&P 500 Total Return Index. A sell-off of momentum stocks affected performance since April, but macroeconomic and volatility filters indicate low risk typical of a bull market and we maintain full exposure to equities.

* Results are unaudited and subject to revision.

Gold and the Dollar

Gold continues its decline since breaking medium-term support at $1280. Declining 13-week Twiggs Momentum below zero suggests a primary down-trend. Breach of primary support at $1240/ounce would confirm. Follow-through below $1180/$1200 would strengthen the bear signal. Respect of support at $1240 is unlikely, but recovery above $1280 would suggest that another bottom is forming.

Spot Gold

* Target calculation: 1200 - ( 1400 - 1200 ) = 1000

Gold Bugs Index, representing un-hedged gold stocks, breach of support at 235 strengthens the bear signal for gold. Reversal of 13-week Twiggs Momentum below zero is also bearish.

Gold Bugs Index

The Dollar Index is testing resistance at 84.50/84.80. Recovery of 13-week Twiggs Momentum above zero reflects a primary up-trend. Expect retracement or consolidation at the resistance level, but breakout would signal another primary advance. Reversal below 81.50 remains unlikely. A rising dollar is likely to weaken demand for gold.

Dollar Index

* Target calculation: 81.50 - ( 81.50 - 79.00 ) = 84.00

US Markets

Dow Jones Industrial Average is consolidating in a narrow band above 17000. Sideways drift on 21-day Twiggs Money Flow reflects hesitancy. Breakout above 17150 remains likely, however, and would offer a target of 17500*. Reversal below 16950, while unlikely, would test the rising trendline around 16700.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 - 15500 ) = 17500

I still expect the Nasdaq 100 to retrace to test its new support level at 4000. A 13-week Twiggs Money Flow trough above zero indicates buying pressure. Respect of support is likely and would offer a target of 4250. Reversal below 4000 is unlikely but would warn of a correction.

Nasdaq 100

* Target calculation: 4000 + ( 4000 - 3750 ) = 4250

Russell 2000 small caps is once again headed for a test of resistance at 12.00 on the monthly chart. Completion of a second 13-week Twiggs Momentum trough at the zero line would suggest a healthy up-trend. Breakout above 12.00 would signal an advance to 13.00*. Breach of support at 11.00 is unlikely, but would warn of a down-trend.

Russell 2000

* Target calculation: 12 + ( 12 - 11 ) = 13

He who fights with monsters should look to it
that he himself does not become a monster.

~ Friedrich Wilhelm Nietzsche, Beyond Good and Evil (1886)


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