The monthly unemployment report is likely to be a victim of the US government shutdown
1330: Initial weekly US unemployment claims rose by 1,000 to 308,000 in the week ended on September 21st, versus the 315,000 expected by economists.
1320: Vodafone’s CFO will step down from his role of nine years once the sale of its stake in Verizon Wireless completes. The stake, which is being sold for 80bn pounds, is expected to be sold by March 2014. The FTSE has risen 24 points to 6,461.50.
1242: Overnight the Chicago Mercantile Exchange (CME) hiked its margin requirements for operators in the Dow Jones, SP 500 and Nasdaq E-Mini futures contracts by nine per cent. According to Zerohedge that may be a result of President Obama’s remarks to the effect that Wall Street has not yet recognised the seriousness of the current impasse on Capitol Hill.
1120: A little more colour on Aviva, in remarks to Sharecast Ronni Chopra – Head of Strategy at Tradenext – pointed out that in the medium-term the stock might still be a potential take-over target. FTSE 100 up 17 to 6,454.
The crucial story for gold investors is not the pure inflation rate of the dollar, but something much deeper. When you focus on gold, you should sharpen the focus of your lens on the dollar system. As history confirms, gold can both increase and decrease under inflationary circumstances. It is also the case when considering the opposite scenario, which is deflation. It all depends on how well the dollar system is performing (how well is both dollar as a currency and dollar understood as dollar denominated assets; bonds, stocks, derivatives, credits etc.).
The easiest way to look at the dollar is to compare it as a currency against all the other currencies. This, in fact, was the best way to assess the dollar from 2002-3, when it started to lose its value against other currencies and gold began its long and spectacular upward climb. This took place while a bubble formed in dollar denominated assets, especially real estate.
In 2008 there was a radical shift. Shortage of liquidity in the financial markets lead to massive selloffs of assets in all markets, with emerging markets being hit the most. That’s when the dollar got a gust of air in its sails, and increased significantly in value. Under current circumstances, the dollar – as a currency – does not appear to look that bad. Even when compared to other strong currencies the dollar looks firm. The central bankers who print the British pound and the Japanese yen seem to be devaluation devotees and the euro is still recoiling from the turmoil of numerous internal problems.
Therefore, when looking purely at the currency markets, the dollar does not appear as endangered as it may seem. However, as we hinted at the beginning, this is not the whole story. We have to assess not only the dollar against other currencies, but the entire dollar system, that is dollar denominated assets. The dollar may be a better investment than the British pound, but the big question is whether gold may be an even better investment than the dollar even when it outperforms the pound.
So how is the dollar system performing internally? One of many possible things to focus on is the interventionist policy of the government, especially the central bank. This can tell us how firmly the economy stands.
In the recent years we witnessed tremendous expansion in the Fed’s activity. Since it all comes down to money creation (supplied for financial papers and bonds), this influence is rather negative for the whole dollar system. This means that from the economic point of view, the outlook for gold is quite favorable for the coming years.
I HAVE UNDERSTIMATED THE SCENARIO OF A DEEPER CORRECTION
[sws_blockquote_endquote align=”left” cite=”” quotestyle=”style02″] Incase of S&P 500 Index printed below 1597 can open the DOOR to deeper correction towards the area of 1567 to 1497. [/sws_blockquote_endquote]
Pray to The God for taking support as 1597 to 1608
In my opinion the top of the up leg from the November lows is in place.
We will have the absolute confirmation when price establishes a lower high.
Below I show you the SPX weekly momentum indicators where we can see that the RSI has breached the trend line support in force since the November 16 low.
The next intermediate buy signal usually should occur when the RSI and the Stochastic retest the 50 line.
I rule out a major reversal, instead I maintain the scenario of a retracement of the advance from the November lows.
As I discussed last Friday the major reasons that suggest that price has not established a major top are:
The up leg from the November lows has unfolded a corrective 7-wave structure ===> A corrective EWP cannot establish a major Top.
The current pullback is also unfolding a corrective pattern ===> The intermediate trend remains up.
Retails investors are extremely bearish (I have never seen a major top with an extremely low AAII Bull ratio)
Regarding the potential target, at the moment, since we are in the initial stage of a corrective pattern I can only say that price should establish a bottom in the range 1485 – 200 dma. (which today stands at 1453)
Once a lower high is in place the next down leg should aim at the 0.382 R = 1500, where probably a large rebound will take place. If bears maintain the sequence of lower high/lows then the following down leg will reach the target box.
Therefore I reiterate that the above “road map” looks very probable as long as the bounce, which began last Friday, establishes a lower high.
Regarding the long-term count I maintain the Triple Zig Zag wave (X) scenario. As I have discussed in previous weekly updates since the assumed wave (Z), which began at the November 2012 low is not impulsive I am suggesting that it should unfold an Ending Diagonal, if this is the case on April 11 price has completed the wave (I).
The summation Index, which, peaked at the end of January is already oversold (RSI has crossed the 30 line) and on Friday it has breached the 200 dma. It is remarkable that SPX has been able to establish higher highs with such a weak breadth performance.
Going forward since price has just began a corrective phase an already oversold Summation Index should prevent a major decline.
Lets move on to the current price action.
It is reasonable to expect that the rebound from last Thursday lod to reach the target box delimited between the 20 dma = 1564 and the 0,618 retracement = 1574.
If it tops at the 20 dma the 1×1 extension target for the following down leg would take us to the 0.382 retracement of the advance from the November lows at 1500.
EW wise price would be unfolding a Zig Zag therefore if lower prices were in the cards probably this initial Zig Zag would morph into a Double Zig Zag
Lastly VIX on Friday has “issued a Bollinger Band buy equity signal”. Friday’s drop has been larger than I initially thought moving back below the 200 dma. I still expect a bottom in the range of the moving averages (10-20-50) or in the worst-case scenario at the rising trend line support in force since the March 14 low. The lower is the retracement the larger will be the assumed SPX wave (B) rebound.
I still think that the pattern that VIX is unfolding does not suggest a major move to the upside but as long as the sequence of higher lows/highs is maintained the trend remains up.
My road map can be seen in the SPX daily chart below:
The main themes are:
The rally from the November lows has unfolded a corrective pattern = Triple Zig Zag ===> Therefore we don’t have yet the top of the wave (X) from the 2009 lows.
Neither we do have yet the absolute confirmation that price has began a corrective phase until bears achieve to break through the support layer located in the range 1538-1531
Once the support layer 1538-1531 is breached I expect that this pullback will find a bottom in the range 1485-1431
Before moving on with the weekly technical update I have to bring forward the following technical issues that will affect the progress of the expected pullback:
The internal structure of the current down side price action is clearly corrective therefore every single impulsive sequence to the down side (waves C) can be the candidate to establish the end of the correction or at least it will open the door to large counter trend rebounds.
Bears also have an issue with an already oversold McClellan oscillator and with a bullish cross of its stochastic. Therefore even if next week bears win the battle (achieving a lower high followed by a new lower low ===> My preferred scenario) the next dip of the McClellan Oscillator below the Bollinger Band will most likely trigger an oversold large counter trend rebound. (As long as the McClellan Oscillator remains below the zero line bears will remain in charge)
Weekly Momentum Indicators have to confirm the kick off of the expected pullback:
The RSI has to break the trend line support in force since the November lows.
The Stochastic has to trigger a bearish cross followed by a drop at least at the 80 line.
The MACD will dictate over the intensity of the expected pullback depending upon if it issue a bearish cross.
Lets move on to analyse the SPX charts.
Friday’s reaction to a poor NFP (Investors are judging that bad economic numbers will maintain Quantitative Easing into infinity) has left in the chart a bullish Hammer which is suggesting follow through to the upside at least for next Monday.
I don’t know how long the bounce will last (Attempt of the bulls to kill the bearish set up). If it is chop up and down (But below 1564) during next week then price could be forming the right shoulder of a H&S that has a target at 1505, otherwise if it is just 1-2 days rebound what really matters is a lower high.
If the bearish set up pans out, remember the oversold McClellan Oscillator, if the assumed pending down leg is impulsive it could stop either at the 0.618 retracement (1519) or at 1505 (If the H&S pans out) from where I expect a large bulls’ countertrend attack.
Regarding the short-term price action, in my opinion, SPX from last week top has unfolded a Double Zig Zag wave (A) therefore the initial pattern of the expected larger correction should be a Zig Zag down.
The expected wave (B) rebound in progress can also unfold a Zig Zag since I doubt that at Friday’s hod the counter trend bounce has topped, hence the potential target should be located in the 1561 +/- area. Bulls will probably try to form an inverted H&S with the neckline at 1561.78 (Eventually it should result in a bull’s trap).
Nasdaq: Going forward this the third stock index that I will closely monitor.
Because the 200 dma is standing above the February 26 reaction low, ONLY 2% below Friday’s eod print, which should be the right spot for the kick off of a large countertrend fight from the bulls (Bottom or temporary halt of a larger corrective pattern). If eventually the 200 dma is breached it will issue a sell signal to the majority of institutional investors.
If the 200 dma is breached then maybe the large Triangle wave (B) option could pan out: