Well, the US Dollar continued it's assault on new highs. But more importantly, it is soaring relative to all the other currencies in the Dollar Index. I'll have more on that in a bit, but the market is starting to look a little stretched. The one thing that is concerning is how far we have moved away from the moving averages.
The sudden surge in November has become a common theme in recent years. A meaningful 4th quarter rally has been in play most years. The rally actually started a few days before Mr. Trump won the election, but it sure soared since the election. Below I have marked a couple of the bars from the last few weeks. The inside bar was just after breaking out above the previous highs which looked like a reversal. The sudden surge last week was obviously very bullish. However, this week, we have been unable to make any further progress again. So far, we have tested higher and lower. We currently sit just under last Friday's close. If we compare the price action off the February low, the price bars in that rally were much more aggressive, continuing to climb every week. The bar I have labelled as 'stalling momentum' is what we need to watch. We need to resume the momentum we were building.
For the commodities, Natural Gas looks to have struck a major resistance level around $3.75. That line has been on my chart for a few years now. It also represents a marginally profitable production cost level. Lots of gas will flow above $3.75.
$GOLD has fallen 'Out Of Favor' after a tremendous rally in the first 1/2 of the year. However, on the long term chart, Gold is approaching an interesting line. It marks the 2006- 2007 resistance areas as well as the 2008 low and now it has touched the 2015 low. Yes, it's terribly oversold. But the 2012-2013 waterfall demonstrates the ability of a commodity to just plummet endlessly. I think we have to be aware of the $US Dollar to find out when to buy $GOLD.
I noticed this morning, there was already a correlation made to Gold jumping up because China had captured a US unmanned survelliance craft. But it didn't jump on election rigging by Russia or Trump talking to Taiwan or... I think following the price action on $GOLD and the $US Dollar will be more important than odd correlations. The $USD has rallied up to 103. Does the 103 level become resistance on the $USD and give $GOLD a slight chance to rally? The $USD is clearly breaking above the 100 level. Where the $USD goes is important for Gold it would seem.
The US Dollar ($USD) is surging against every other currency in the Dollar Index. This is not just a move against the Euro. So the upward pressure on the Dollar seems massive. Watching how the Euro behaves below 105 will be a good measurement for change in the strength of the $USD move. After breaking support, its always important to watch to see if the breakdown ($XEU) holds. In the chart below, we can see a slight tracking error on the UUP compared to the $USD. On the left side they are further apart than on the right hand side. The bottom line is that the $USD (left scale) is now around 103.
I covered a wide range of topics on the webinar. Rifling through the charts, the Perf Chart continues to show defensives outperforming for a week now.
Again, from the sector rotation model, a move towards defensives would be less bullish to say it politely. As the Stock market tops (red), moves towards defensives takes over. The Economy (green) starts to see that months later. A week doesn't make a trend, but the Health Care sector has outperformed the Financials by 2.8 % this week!
Here is a link to the webinar. There is a lot of meat in there. I think at least one chart will be illuminating.
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Greg Schnell, CMT, MFTA.