Commodities Countdown

The Ferocious Gold and Oil Rally

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

In the continuing trend of US Dollar weakness, the gold mining stocks and the oil producer stocks have broken out to new highs. While the $USD continues to test support at 93, the miners are rallying like that $USD level will not hold. The horizontal blue lines in each chart represent closing support levels on different looks at the $USD. The UUP and USDU have a drift lower because of management fees of the ETF etc. The USDU is a broader collection of currency pairs to the $USD with less weighting on the Euro specifically.

The charts for oil, gold and commodities continue to move opposite the $USD. This chart from the beginning of the year, shows oil and gold advancing significantly, whereas the commodity index basket of 19 commodities is flat in the same time period. The Commodities Index in pink started to rally as the $USD started to weaken off the end of January. As this Commodity Index has a 40% weighting in Oil (25%), $NATGAS (5%), $GASO (5%), $HOIL (5%), the other components were really struggling to revert to an uptrend. As the $USD has pulled down to the 93 level, the commodities have had a recent surge in the last 5 - 10 days.

This is an extremely strong trend and everyone is now bullish on gold. I have some reservations as the $USD approaches support. While a proper position size in $GOLD and $WTIC related trade should be comfortable to hold, stops should be somewhat tighter here in my view, as the risk that the $USD finds support is significant. While $GOLD is up 18 % from the beginning of the year, oil is up 44% from the February contract low.

Let's focus in on the $USD pairs. First, here is the $JPYUSD. This compares the Yen to the $USD. The Yen pair built a base 15 months long. It has now done a measured move of the same amount as the height of the base. There is nothing saying it can't go higher, but basic technical analysis tools would suggest this move is complete at 100%. Should it continue higher, the next target would be 161.8% of the base height. At this point in time, it is important to recognize we are at a level that could be a major resistance point. 

Below is the $EURUSD. This is the Euro pair. The base is now 16 months wide, but we have not broken out yet. In the zoom box on the right, you can see that the bars have been overlapping significantly. The charts of $JPYUSD and $EURUSD will update overnight so this chart will have new data in the morning, but it moved down roughly one cent today, gapping below the bottom of this congestion. That will also put the MACD on a sell signal when it crosses the signal line.

I'll cover off these currency pairs tomorrow on the Thursday episode of the Commodities Countdown Webinar 2016-04-14. Click here to register. These will dramatically affect the commodities as well. The overall equity market breadth continues to push wider and into some sectors that have been lagging like the Financials. The JP Morgan report this morning sent bank stocks surging. While the Financials are the largest sector weighting in the S&P 500, none of the gold and oil stocks were on most active lists today. So while the market moved up strongly today, we might be seeing some change in leadership. I'll try to cover that off on the webinar as well.

Good trading,
Greg Schnell, CMT, MFTA. 

 
Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More