Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Shanghai-SPX Relationship and Charts of the Week

Stock-Markets / Financial Markets 2010 Feb 22, 2010 - 03:38 PM GMT

By: Mike_Paulenoff

Stock-Markets

Best Financial Markets Analysis ArticleThe first chart I will explore today is the relationship between gold and oil and the dollar. The daily chart of spot gold versus spot euro/dollar shows a normal relationship, at least at first glance, with gold and the euro, as priced in dollars, moving in the same direction.


Gold has undergone a serious correction from its December high at 1227 to its February low at 1044, while the euro has been going down the entire time. What is interesting about this chart is that the trendline in gold was broken right around 1095-1100. Gold made its low on Feb 5, and then took off to about 1130 in the last three weeks and continues to go up. But the euro has been going down (stronger dollar).

Gold and the euro going opposite ways of late is a very strange relationship. I have to think that gold is sending us some sort of message that there’s a reason why the market wants to accumulate gold even while the dollar is not friendly toward gold at the moment.

That said, though, let's notice what happened on Friday. The euro actually reversed to the upside after hitting a multi-month low in the morning session of 134.40 and closed at 136.13, which was above Thursday's close at 135.30.

Still, the euro is very oversold. We also know this by the way the relative strength or momentum indicator is acting. The chart shows a number of new lows for the euro over the past month, where during the same time momentum made a higher low.

At the same time, gold was consolidating at a relatively high level at 1100–1130 all week last week and is above the break of the trend line that occurred on February 16. Gold had an upleg, is consolidating, and appears ready to take off again -- good news for holders of the SPDR Gold Shares ETF (NYSE: GLD).

Normally, when the euro gets hit so hard that it drops below its 200- 50- and 20- day exponential moving averages, usually gold will look the same way. Gold, however, didn’t follow suit this time. Instead, on February 5, gold hit a low right at its rising 200-day and didn't break it, rallied from it, and is now consolidating above both its 20- and 50-day.

So the chart is telling us that something is going on in gold that could be extremely positive, and something going on in the euro that could stabilize it for a while, which could be very positive for gold. The likelihood gold could take off is enhanced by the fact that the euro may be turning up for a relief rally.

What would cause a relief rally? I've been reading that the Greeks are coming to the market with a bond auction this week, which will be a litmus test to see if that bond can be sold or if there is any demand for the bond or any confidence at all in the Greek financial fiscal monetary situation and in the Greek government itself.

Any positive news could lift the euro, which looks ripe for a recovery rally that could get to 140. With it currently trading at 136, then we're talking about a rally of 3 percent. In turn, gold could move more sharply, towards to its December high above 1200.

As far as the euro's rally is concerned, I don't want to be long right here. I think there are probably issues behind the Greek situation that will preclude the euro from going into a bull move anytime soon. If anything after a brief rally it will go into a sideways stabilization pattern and roll over again.

To put an exclamation point on gold, let's look at oil, which has been going up at even a faster rate than gold. While gold bottomed on Feb 5 and has gone up 8 percent, oil also bottomed that same day at 69.86 and hit a high on Friday at 80 and change, which is around a 15 percent high.

At the same time the dollar has been going up as well. It's very strange but unique to see gold, oil, and the dollar going up at the same time. When gold and oil are going up in tandem it can mean several things, usually related to geopolitics. Oil could be headed back up toward its October and January highs at 82-84, which should interest holders of the US Oil Fund ETF (NYSE: USO), and gold is probably heading higher as well, possibly to 1160 and maybe 1200.

Now, maybe for the next week to 10 days, the euro if the technicals are right should stabilize and actually be friendly to gold and oil -- as opposed to unfriendly.

In the rest of our video chart analysis this week we look at the relationship between the Shanghai Composite Index and the S&P 500. The chart shows relative the relative health of the SPX to be much better than that of the Shanghai market as we entered the first session tonight in a week for Shanghai.

More on the Shanghai-SPX relationship available in our video.

Sign up for a free 15-day trial to Mike's ETF & Stock Trading Diary today.

By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

© 2002-2010 MPTrader.com, an AdviceTrade publication.  All rights reserved. Any publication, distribution, retransmission or reproduction of information or data contained on this Web site without written consent from MPTrader is prohibited. See our disclaimer.

Mike Paulenoff Archive

© 2005-2022 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