Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

U.S. Dollar, Euro, Gold, Silver, and VIX Poised For Trend Reversals

Stock-Markets / Financial Markets 2010 Nov 10, 2010 - 09:22 AM GMT

By: Chris_Ciovacco

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleNumerous factors and markets are telling us the odds of short-to-intermediate-term reversals are elevated for numerous markets including silver (SLV), gold (GLD), the U.S. dollar (UUP), the euro (FXE), stocks (SPY), and the VIX (VXX). The objective of both fundamental and technical analysis of the financial markets is to help us better understand the risk-reward ratio and relative attractiveness of a wide variety of investments. Since no chart or annual report can help us predict the future, our study of markets deals in probable outcomes.


The possible drivers for market reversals in dollar, euro, gold, silver, and VIX include:

  • Concerns about Irish debt
  • Uncertainty related to the G20 summit
  • High levels of optimism (bullish sentiment/contrarian indicator)
  • Near vertical, and correction-less ascents in numerous markets
  • Mania-like moves in gold and silver
  • Stretched valuations

We at CCM, along with many others, believe the sharp gains in many asset classes off the summer lows were primarily driven by the expectation of money printing and a weaker dollar. As the dollar weakened, many risk assets or inflation-protection assets rose. One example is gold; note the negative correlation between the yellow metal and the U.S. dollar.

These charts can help us from both a bullish and bearish perspective. If the markets reverse near the areas highlighted below, we would be more apt to become risk averse in the short-term, especially in terms of decisions related to cash. If these markets break through areas of potential resistance, then another leg up in risk assets becomes more likely, and we would be more amenable to increasing risk exposure in the short-term.

Just as a declining dollar increased the appetite for risk over the past five months, a countertrend rally in the dollar may open the door to corrective action in stocks and commodities. The Dollar Bear ETF (UDN) was down Tuesday on a 56% increase over average daily volume. As you review the charts below, ask yourself, “Is this market at a logical point for a possible reversal based on the recent action of buyers and sellers?”

The euro may have reached a point where buyers have become less interested. Recent concerns about Irish debt may also give currency traders a reason to cut back their exposure to the euro. Since the euro makes up roughly 60% of the U.S. Dollar Index, a drop in the euro would help propel the dollar higher. The desire to sell the euro ETF (FXE) was not atypical from a volume perspective on Tuesday, which tells us not to assume anything in terms of a reversal. A decline in FXE over the next few days on strong volume would add credence to the trendline. Average daily volume for FXE over the past three months was 1,556,260 shares. A decline over the coming days on more than 1,867,512 would add to our bearish concerns. A break to the upside on more than 1,867,512 would lean toward favorable outcomes for risk (stocks, commodity-dependent currencies, and commodities).

Technical analysis can look complex, but many of the most useful tools are very easy to understand. Trendlines are used to identify areas of past importance in the minds of buyers and sellers. Buyers tend to see value at areas of “support” and sellers tend to see “overvaluation” at areas of resistance.

The VIX, or the “fear index”, has reached what many would term as a level of “complacency”. A rise in the VIX, especially a sharp one, often occurs during periods of risk aversion. The VIX ETF (VXX) was up Tuesday on strong volume.

Silver tends to outperform gold during periods of risk-taking and when the economic outlook skews toward the more favorable end of the spectrum. Silver may have experienced a blow-off rally yesterday (SLV). Markets cannot logically rise in a vertical fashion forever; silver will correct at some point. Another day of high-volume selling would increase the odds that Tuesday’s intraday selloff on extremely high volume was indeed significant from a bearish perspective. As we head into trading on Wednesday, silver gets the benefit of the doubt since the bulls have been firmly in control, but Tuesday was a big yellow flag for the silver bulls.

Gold’s appeal has increased as fiat currencies are being debased around the globe. Gold has not had the high degree of mini-mania seen recently in silver, but the yellow metal has also reached a point where the desire to sell may now exceed the desire to buy. The gold ETF (GLD) was down Tuesday on strong volume.

The S&P 500’s intraday high on November 5th was 1,227.08. A 61.8% Fibonacci retracement of the October 2007 to March 2009 bear market falls near 1,228 on the S&P 500. These levels can be important to traders, so it is helpful to keep them on your radar, especially when you have trouble understanding why a market is stalling with no apparent resistance nearby.

The chart of the S&P 500 seems to be a little better positioned relative to overhead resistance. If stocks can push higher, a move to 1,234ish to 1,256ish on the S&P 500 seems within reason. The S&P 500 ETF (SPY) was down Tuesday on below average volume, which again highlights the need to pay attention rather than assume reversals are going to take place – no one knows what is going to happen, especially over the short-term. Over the summer, many were convinced the Hindenburg Omen spelled doom for the markets; the S&P 500 is now 16.7% above the Hindenburg Omen lows made in late August 2010, which is just one example of the importance of remaining flexible in terms of market outcomes (bullish and bearish).

Trendlines are broken all the time, which reinforces the probabilistic nature of this analysis. We cannot predict the future, but we can say it makes sense to pay attention over the next week or so. With the information we have in hand now, we believe many market reversals will represent corrections within ongoing trends. We believe gold, silver, and stocks will eventually make higher highs after the next correction, which will come at some point. We recently outlined other concerns about the dollar, and concerns about gold, which still apply to the current market.

If you are a little perplexed by the recent gains in inflation-friendly assets, it may be helpful to scan some of the charts on the lower portion of this Quantitative Easing page. The Fed’s objective of re-inflating asset prices and debasing the dollar will probably lend support to gold, silver, and stocks after the next round of corrective activity. Since there will probably be a QE3, QE4, and QE5 over the next few years, it is worth the time to understand how QE works, what the Fed is trying to accomplish, and the possible impact on your purchasing power and investments.

By Chris Ciovacco
Ciovacco Capital Management

    Copyright (C) 2009 Ciovacco Capital Management, LLC All Rights Reserved.

    Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

    Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. As a registered investment advisor, CCM helps individual investors, large & small; achieve improved investment results via independent research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions. When looking at money managers in Atlanta, take a hard look at CCM.

    All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

Chris Ciovacco Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules