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This
analysis seeks to update the trend prospects for all three major markets into
at least the end of this year by taking into account their inter-market
relationships which should resolve in a more accurate projection for each
individual market.
Gold
Bull Market Forecast 2009, 2010 Update
Gold
has had a stellar run of late, which recently saw Gold pushing to new all
time highs on a near daily basis which has galvanised wider mainstream press
attention to the precious metal with many gold bugs revising targets ever
higher into loftier goals such as $2000 and even $4000+. Gold is one of the
most popular asset classes both sought after by readers and written about by
market commentators, and one of the most emailed query as to when will I
update my original gold analysis of 22nd January 2009 which concluded during
mid 2009, therefore this analysis seeks to project the Gold Price trend well
into 2010.
Gold
Price Forecast 2009 Evaluation.
My
original analysis for Gold as of 22nd January concluded with a gold price
trend higher into March 2009 towards a target of $960 to be followed by a
subsequent decline into mid 2009 as illustrated by the original forecast
graph below.
The
Gold price forecast proved to be accurate in terms of the projected impulse
waves. This analysis seeks to project Gold forward several months into 2010.
Fundamentals
- Inflation Driving Gold?
The
problem with this scenario is that the inflation of the 1980's and 1990's did
NOT drive Gold higher, so clearly the mantra of Inflation driving gold higher
is not correct, especially as we are presently emerged in debt deleveraging
deflation, and neither does discounting future inflation expectations hold
up, as the Gold bull market is now into its 10th year with a gain of 400% to
date.
Gold
Secular Bull Market
From
1980 to 1999 Gold fell for 20 years, eventually it would bottom and embark on
a bull market, eventually, the signs for this would be not in fundamental
data, but contained within the price chart as Gold breaks the pattern of
corrective rallies followed by the downtrend resuming to new bear market
lows. Now some 9 years later gold has corrected the preceding secular bear
market by 50% in time and 100% in price. Therefore gold is not in a new bull
market which has already contained many vicious bear markets within it as we
witnessed last October, so just bare in mind that this is not a fresh young
bull market, therefore much of the talk of waiting for public participation
to join in can be discounted.
U.S.
Dollar / Credit Crisis
My
analysis of a positive trend for the USD clearly implies given the inter
market relationship between a two for a weaker trend for Gold. However the
risk is that amidst the next phase of the global financial crisis as the
bankrupt banks have far from recovered, the next stage of the banking crisis
accompanied by recognised inflationary panic measures of money printing which
devalues all fiat currencies could give a lift to gold.
Quantitative
Easing aka Money Printing Hedging
We are
in a new world (for the west anyway) and that is a world of Quantitative
Easing, the more the governments of the world print money and monetize debt
the easier it is for governments to keep printing and monetizing ever
escalating amounts of government debt to cover the government budget deficit
gap. What this means is collective currency devaluation where relatively
speaking there appears to be little change but in real terms the flood of
money has to be seen in rising commodity prices and other scarce resources,
after all the supply of resources is mostly known and the population of the
world is not decreasing so the demand is known to be on an upward curve.
Therefore as long as the central bankers are embarked on the experiment of
quantitative easing that should give a lift to gold and other commodities as
it increases inflation expectations and therefore inflation hedging using
gold and more liquid commodities such as crude oil.
Gold
Technical Analysis
ELLIOTT
WAVE THEORY - The elliott wave pattern implies we are a strong bull market
that has much further to run, i.e. in Wave 4 of a larger Wave 2 advance. This
also suggests that the immediate future should see further weakness in gold
towards $1,000. However, this is just a correction in the trend that projects
to a price of more than $1,100 by the end of this year, with the trend
continuing into March 2010 toward $1,200 before a more serious correction
takes place.
TREND
ANALYSIS - Gold's breakout to a new all time high is a clear signal of further
strong advances. The support trendline is at $1,000 and therefore fits in
nicely with the elliott wave correction projection target. After the uptrend
resumes this trendline is unlikely to be revisited until the second quarter
of 2010.
SUPPORT
/ RESISTANCE - Resistance lies at the last high of $1071, Immediate support
lies across the string of previous highs of $1033 and $1007, therefore there
is very heavy support whilst very light resistance overhead, which again is
suggestive of a mild correction in the current phase of the trend.
PRICE
TARGETS - The measuring move off of the $681 2008 low projects all the way to
$1,350, which looks set to be an achievable price during 2010. Nearer term
immediate targets extend to $1,100 then $1,200.
MACD -
The MACD indicator signaled a Gold breakout at $960, with a firm established
uptrend. The current correction is inline with that of a mild correction
within a strong uptrend.
SEASONAL
TREND - There is a strong seasonal tendency for gold to rally from November
through January i.e. for the next 3 months. This is suggestive that the
current correction is living on borrowed time and may not last much longer.
Gold
Conclusion
I
started off this analysis skeptical of the prospects for gold given the 10
year bull run to date, but the price that is talking off the charts is pretty
bullish! enough for me to consider accumulating a position. In the immediate
future Gold appears to be targeting a continuing correction towards $1,000,
after which it targets $1,200 by March 2010 and a price of $1,350 later
during 2010.
Gold
Long-term - Gold has broken out to a new high and it does look as though it
is going much higher in the long run, there are multiple measuring moves that
one can consider, such as 133%, 150%, 1.618% etc. However given the gap in
time between the all time peaks, Gold of $2000 plus would now not surprise
me.
Gold
Bull Market Inter market Implication - Bearish on the U.S. Dollar.
Stocks
Bull Market Forecast Update Into Year End
The
update on the stocks bull market of early September called for a continuing
trend towards a target range of 9,750 to 10,000 by late September / Early
October to be followed by a correction in the region of 10% towards a target
zone of 8,900 to 9,100, as illustrated below.
The
market subsequently peaked in the middle of the target zone and began a
correction which took the Dow down to 9,430.
This
was soon followed by surprisingly quick and powerful reversal to the upside
that that lifted the Dow to above 10,000, peaking at 10,120. Readers of my
weekly newsletters will know that I was skeptical of this phase of the bull
market because it had not allowed both enough time and price to correct the
preceding advance and therefore was not seen as being sustainable.
Bull
market Re-cap - The stocks bull market that began in early March has so far
from trough to peak advanced by 56% on the Dow against the preceding peak to
trough decline of 54%. Those that refer to this as a bear market rally do not
know what they are talking about as the rules have ALWASY remained the same
in that a bull market is recognised by a 20% rally from a bear market low and
a bear market is recognised by a 20% drop from a bull market peak. It is only
that many analysts don't follow the rules! Instead much rather prefer to
re-write history. THIS IS a STOCKS BULL MARKET, and when it will resolve into
a bear market depends on when we next get a 20% confirming trigger !
(allowing for short-term whipsaws), so until I see such a definitive trigger
the market will be treated as a bull market.
Stock
Market Crash Again?
Forget
swine flu, the pandemic doing the rounds is that of another Crash with the
1930's chart dusted down and presented as near fact of what is to transpire
on every correction. However the markets response has so far always been to
push to a new high for the move.
What
happens to the crash calls ? They again get rolled out again on the NEXT
correction! However the damage has been done as short stops are hit and
losses accrued, that no broker will refund for the next crash call.
Stock
Market Crash Calls
1. You
CANNOT know with any reliability that the stock market is going to crash
until AFTER it has actually peaked and entered a downtrend. Anyone that tells
you a bull market pushing to new highs is going to crash is going to lose you
all your money, as the market rallying significantly from the crash call
NEGATES THAT CALL where trading is concerned, because any short positions
enacted upon the call are stopped out!
2. You
can only enter a Crash TRADE barely a day or hours before the crash event.
Crash calls made weeks, months or years in advance are WORTHLESS where
trading is concerned, and where investing is concerned, all investors should
have stops on their positions based on technical considerations of where they
would admit their analysis is wrong on a particular stock.
Crash
calls are dangerous in that bring emotions into play which instead of staying
focused on reacting to price action, adrenaline gets traders to commit to
positions that will soon most probably bust their accounts where EVEN if the
market eventually does CRASH, they will have been wiped out by the
intervening rally SINCE the crash call! It is this fact that that is always
forgotten.
Don't
believe me ? Go check ALL of the hyped stock and other market crash calls
that in actual fact WERE FOLLOWED by moves that would have wiped out REAL
trades had those calls been acted up on.
In
recent weeks I have been sharing a some of my trading ideas that I do not
have the time to turn into a book -
Get in
Synch with the Market
Forecasting
and Trading
The
Holy Grail of Trading
How to
Learn to Trade
Don't
Think Too Much
Depression,
What Depression ? - US GDP soared in the third quarter to 3.5%, yes, the rate
of accent is probably NOT sustainable, but the debt fuelled bounce will
continue a while before it peter's out into. The key point is as I pointed
out in the analysis of October 2008. That we are NOT heading for another
1930's GREAT DEPRESSION, and therefore scrub the notion of following the
1930's chart pattern towards anything like a 90% stocks crash. So far the
analysis is proving correct.
Good
News Turns Bad - Stocks fell following strong US GDP data, which tells you
that the market wants to head lower in the immediate future regardless of
whether the news is good or bad, this supports the view that the market wants
to break below the 9430 low.
Corporate
Earnings - Corporate earnings have FOLLOWED the stock market higher, so what
happened to the doomsayers of 6 months ago that repeatedly stated that
corporate earnings forecasts implied stocks could NOT rally ?
 
ELLIOTT
WAVE THEORY - The elliott wave pattern is not clear, at best it resolves
towards an ABC correction that sees an assault on 9430 and probable break.
TREND
ANALYSIS - The Dow has now fallen to the major support trendline, which
implies immediate term support, i.e. stocks 'should' rally here early next
week. The question is will the trendline break or not ? Its a tough call but
I would go with yes, which would target 9430. As you can also see the stock
market is losing momentum as the last rally failed to reach the second
trendline which is suggestive of a tougher trend into year end, though also
implying that the market is not as overbought in terms of trend.
SUPPORT
/ RESISTANCE - Immediate minor support is at 9654, then the last low of 9430,
9250, then 9,100. Resistance over head is at 99,17, 9980 and 10120.
PRICE
TARGETS - Downside price targets resolve into the 9100 to 9430 zone. Upside
trendline projection implies 10,500 into December.
MACD -
The MACD continues to show negative divergence to the price, though this has
been ongoing since late August which implies an unraveling of the overbought
state.
VOLUME
- Volume has been WEAK during the rally, which contrary to much bearish
commentary implies that this rally has NOT been bought into. So all of the
talk of hyper bullishness is basically rubbish as there is no sign of such
irrational exuberance in the volume, which remains heavier on the declines
than the rallies and thus suggestive of selling rather than buying into the
rally. Which is good behaviour for a stealth bull market.
SEASONAL
TREND - There is a strong seasonal tendency for stocks to rally strongly
during the months of November and December, following a weak September and
October. The trend to date suggests right translation in the seasonal data
i.e. pushed forward a month or so which implies that the trend into Mid
November may be contrary to the seasonal tendency.
Stock
Market Conclusion
There
is nothing to suggest at this point in time that the stocks bull market is
over which means that that corrections are for accumulating into, the overall
trend is for stocks is to continue climbing a wall of worry whilst investors
are scared by the vocal crash is coming crowd that will continue to re-write
history to always be right in hindsight to again come out with more crash
calls over the next few months as the Dow chart of the 1930's gets it's start
/ end date manipulated again so as to fit fresh crash calls.
The
stocks bull market that has raged since the March low has fulfilled the
original objective for a 50% advance, therefore upside for the next two
months looks limited with greater risk of downside in the coming weeks though
pending a break of the major support trendline which implies a rally in the
immediate future. All in all this is suggestive of a downtrend towards 9,400
into Mid November with a year end rally to back above 10,000 targeting a
rally high in the region of 10,350 to 10,500 during December.
Inter
market Implications - Suggestive of a mild dollar rally, and a mild uptrend
for commodities.
U.S.
Dollar Bull Market Scenario Update
The
most recent price action has seen the U.S. Dollar manage to hold onto USD 75
support that has propelled the dollar back through 76, however the trend over
the past 2 months has been weak. The last update of the US Dollar bull market
scenario of mid August 2009 called for a rally that targets USD 90 by the end
of this year as long as 75 holds, as indicated by the original chart below :
More
analysts joining the Dollar bullish scenario- The bullish dollar scenario is
increasingly being joined by more 'big named' analysts including Robert
Prechter and then Mike Shedlock, though the U.S. Dollar in actually bottomed
in March 2008 with the subsequent trend having deviated little from
projections as the January 2009 update illustrated which a forecast sideways
ABCDE trend into a late July low.
DEVIATION
FROM THE FORECAST - The USD has under performed during the past 2 months
which is a sign of weakness and therefore suggests upside action over the
coming months will be limited with a far greater risk of downside breakdown
then before, so signaling caution.
ELLIOTT
WAVE THEORY - The elliott wave pattern nicely resolves to a ABC decline, with
C wave comprised of 5 waves down to the recent low. With the USD at 76.36 it
is therefore make or break time for this pattern which suggests that the low
is in and therefore the trend should now be higher in terms of the wave
pattern.
TREND
ANALYSIS - USD has marginally breached the down trendline from the 89 high
which is a positive, however it has yet to make a higher high which would
require the USD to rally and close above 76.60, which is not too distant from
the last close. However the trend of the past 3 months has generated much
price action in the 76 to 81 range which means its going to be tough for the
USD to overcome this and is suggestion of volatile price action.
SUPPORT
/ RESISTANCE - Immediate support is 75 a decided break of which would target
71. Near term key resistance is as 77.50. As mentioned above there is heavy
overhead resistance which implies a volatile trend through it.
PRICE
TARGETS - The USD has yet to give any confirming price triggers for the
uptrend, the nearest of which is at 77.50. Therefore the USD is still in its
downtrend until it manages to break above 77.50 that would target a push
towards the 80-81 resistance area. A longer range target for the USD is now
84.
MACD -
The MACD indicator is signaling a breakout to the upside for the USD, and is
just about ready to give a higher high trigger on a further bounce from the
up-trendline, so suggesting the current bounce is more significant than the
preceding one from 76 to 77.50.
CYCLES
- The recent price action puts the USD into the 2.5 cycle low time window,
the question is, is the low a technical bounce or the start of a larger trend
?, but what it does suggest that the current trend has more upside the time,
which it can spend either drifting sideways or push the USD through
resistance.
SEASONAL
TREND - The recent trend was inline with the seasonal tendency for the USD to
weaken between August and October 2009, a continuation of which would suggest
a strong November and a weak December.
USD
Conclusion
The
dollar trend has been much weaker than expected therefore this has to factor
into the conclusion which now resolves to a much shallower uptrend than
previously anticipated, however I do still expect an uptrend to materialise
that now projects to a more conservative 84 to be hit during the remainder of
this year, probably by early December.
Inter
market Implications of a Stronger Dollar - Downward pressure on stocks and
commodities priced in dollars such as gold. However as I have stated above
competitive devaluation may not lead to any significant downward pressure, so
we could yet see all three bull markets exhibit an upward bias over the
coming few months.
Overall
Inter market Conclusion
It
looks like all three markets will manage to trend higher over the coming
months, however given the technical pictures some are expected to perform
stronger than others. I would put gold on the strongest footing then the
dollar followed by stocks, of the three stocks present the biggest question
mark at this point as the immediate future appears bearish. But given the
last closing prices of Gold $1046, USD 76.36 and the Dow at 9,712, I would
expect all three to be significantly higher by year end, which is contrary to
the consensus view of the inter-market relationship between these markets.
Your
analyst focused on commodities for out performance.
Source :
http://www.marketoracle.co.uk/Article14697.html
Nadeem Walayat
Market Oracle.com.uk
Nadeem Walayat is
the editor of MarketOracle.co.uk.and has over 20 years experience in trading
and investing.
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