Stocks and Gold

February 16, 2016

Stocks and Gold:
Will markets and traders ever learn?

The lead paragraph on the major markets Guardian article today was as follows:

“Mario Draghi, president of the European Central Bank, has helped calm jittery financial markets by saying he would not hesitate to take fresh action to boost eurozone growth and inflation.”

Hmm, where have we heard that before…?

Mario Draghi and the ECB are the markets definition of the boy who cried wolf! Over and over the same scenario plays out. Mario Draghi gives markets the ‘whatever it takes‘ spiel and then when the time comes, fails to deliver.

With Draghi’s aim being to calm fears of a stock market crash, I find it interesting that his jawbone has pushed price to re-test previously broken resistance on the German DAX:

DAX30 Daily:
Indices chart, DAX30 Daily, 160216
Click on chart to see a larger view.

With price stepping down in a very technical fashion, the way traders interpret what Draghi can or will actually deliver is key. Taking into account his track record, price is suggesting that the confidence isn’t quite there and as traders, for us price is NEVER wrong. Indices are still majorly in play for me.

It is however from these stock market and central bank driven jitters that we have seen such a strong rally in Gold. Fear has markets pricing out expectations of any more US interest rate hikes this calendar year and that money has been flooding into the relative safe haven that is Gold.


Chart of the Day:
On the @VantageFX Twitter account we have been having an ad hoc look at Gold which had been coming into a confluence of resistance on the daily chart.

XAU/USD Daily:
Commodities chart, GOLD Daily, 160216
Click on chart to see a larger view.

Last night’s price action confirmed the rejection, with the bears taking back control with a huge move back down off the level.

This got me thinking and after seeing this interesting Gold chart on Twitter from @mikeharrisNY earlier in the week, I wanted to give the idea a run as today’s secondary chart of the day:

XAU/USD Weekly:
Commodities chart, GOLD Weekly, 160216
Click on chart to see a larger view.

The chart shows that while the move has been majorly bullish over the last few weeks and we’ve started to do some technical damage to the bearish trend (for all its own headlines, something that oil hasn’t been able to do mind you), the past tells us that it might not be as certain as you might think.

You can see the last time we broke out of a major weekly bearish trend at the first ‘x’, price didn’t manage to sustain the move. Instead price continued in the direction of the original trend, consolidating in sideways trade. This sort of price action happens so often when price attempts to break out of a strong trend. It traps traders trying to jump the gun and pick bottoms, in this case giving the smart money a chance to sell a pull-back and add to their short positions.

What are your expectations from here? With Stocks at major support and Gold at major resistance, how are you setting yourself up to take advantage of any impending moves? Leave a comment at the bottom of this blog or give @VantageFX a mention on Twitter.


On the Calendar Tuesday:
NZD Retail Sales q/q
NZD Core Retail Sales q/q
AUD Monetary Policy Meeting Minutes
NZD Inflation Expectations q/q

EUR German Constitutional Court Ruling

EUR German ZEW Economic Sentiment
CAD Manufacturing Sales m/m
NZD GDT Price Index

Dane Williams – @VantageFX

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