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Gold Is Ready For Takeoff


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US Dollar: Short-Term Top

In this intra-week special report update I want to review the US dollar, which is currently trading at 92.59, down 20 or 30 points. Our analysis shows that the dollar is potentially beginning to confirm that we have made some sort of a short-term top. In previous articles onSeeking Alpha,I have argued that the US dollar has been in a major down trend, as you can see from the long-term charts dating back to 1971. More recently, we have established some kind of a bottom around 88.50 for several months, particularly since the beginning of 2018. What we saw here was a breakout above the 90 area, which activated the uptrend and potentially a swing rally to the current levels in the 93.20 area. The high as of May 9 was 93.26.

The Variable Changing Price Momentum Indicator(VC PMI)automated algorithm, which we use to identify major turning points in a range of markets by calculating the extreme volatility of a given market, identifies specific pivot points at which day, swing and long-term traders can enter and exit the market. We have applied the VC PMI to the dollar, as well as many other markets.

I am doing this special report because theVC PMIstrongly suggests that we are at a significant turning point for the dollar and precious metals. I believe that we are a point where events and trends are going to have major implications, especially since President Trump cancelled the Iran nuclear deal, increasing the risk of a conflict in the Middle East and causing a tremendous uncertainty in the crude oil market, with the price reaching over $70 a barrel. This is not a good change for the world economy. Crude oil trading above $70 is another indication that we are beginning to see inflationary pressures begin to build up in the global economy. Depending on how long oil trades above $70 and how high interest rates rise, with the 10-year Treasury Note now above 3% and US monetary policies driving interest rates higher in the face of record levels of global debt, particularly in the US, which exceeds 100% of GDP, it is a really difficult scenario to accept that all of these economic and geopolitical policies are going to have a positive effect on the world economy. We are already beginning to see deterioration taking place based on some of the economic numbers that came out last week.

Weak Economy

ADP reportedthe weakest job gains in a long time; the biggest miss in 7 years. The job situation is not doing well. The numbers have been manipulated for years to try to make everyone believe that the economy is doing well, but nothing has really changed. What has changed is what the real economy is doing; we are in a recession or headed toward a recession.

Auto Market Crumbling

Retail, GDP, and many economic indicators show that everything is starting to fall apart. Retailers, restaurants, and auto dealers are not showing expected profits. Auto dealers have been selling cars to subprime people, and now they can't afford cars.Ford is planningto cut $25.5 billion in cost cuts by 2022. Ford will attempt to restructure its business, while cutting a lot of jobs. The smaller subprimeauto lenders are starting to implode. Larger lenders will be next, and then the whole system is going to collapse, which is why car companies are trying to cut costs. They are trying to learn from 2008, when many car companies, such as GM, kept spending, taking out more credit. Then the auto market collapsed and they were forced to cut. Saturn and Pontiac disappeared.

Housing Market on the Verge

In the housing market, mortgage rates have jumped to 2011 levels. A 30-year mortgage rate with 20% down jumped to 4.8% for the week ending April 27, up from 4.66% just two weeks ago, according to theMortgage Bankers' Association. At 4.8% a 30-year fixed rate will be equal to the highest rate in 2013. At 5.2%, it will be the highest level since 2010 and if it hits 5.5%, it will be the highest since 2008. Before 2008, interest rates were going up and then in 2008 they began to fall, just before everything fell apart. We are now approaching the 2008 rate. In a couple of weeks, we are probably going to hit it, which will push a lot of people out of the housing market. The big difference between 2008 and now is that home prices have skyrocketed by more than 50% in some markets, such as Dallas and San Francisco. TheCase-Shiller home price indexis up between 25% to 40% depending on thecity. People who have lost jobs or lost full time jobs and gone to part time or lower-paying job, as well as others no wage increases, can't afford these homes. Fannie Mae now allows 3% down who had not seen a raise in years, are no longer in the housing market. Soon we are going to see 0% down mortgages, which is a sign of the end. For the week o fApril 27, mortgage applications were down 2.5%,and they are going to continue to decline because people are being thrown out of the market, which will then fall apart.

I feel very strongly that we are going to see the tremendous pressure based on higher interest rates and the rising cost of oil, taking away any positive benefits from the tax plan that was implemented by the current administration, which might have had a positive short term effect, but is creating a tremendous gap in the trade deficit long term.

These factors are an alarm signaling to me that you have to take into account the position of the dollar in terms of technical, fundamental and geopolitical analysis. You have to conclude that you have to move away from the US dollar into other assets.

Global Tensions and the Gold Market: A Buying Opportunity

Gold has been trading in the $1300 to $1310 area for the past few weeks, and, based on the VC PMI analysis, we have been suggesting in our Seeking Alpha reports that you should buy into these levels and cover any shorts, particularly into that $1303 to $1304 area. The gold market is sending clear signals through the VC PMI, that you should implement some of these strategies to go long.

In the gold and silver futures report we published this past Saturday on Seeking Alpha, we gave you some idea of the levels where we expect a mean reversion to take place. With the gold market closing on Friday at $1315 and using the first filter of the VC PMI report, the 9-day moving average, which was at $1332, that filter came into this week slightly bearish. But the VC PMI also tells us that if the gold market closes above $1332, that it would negate this bearishness to neutral. This is the first pivot point or stop, if you shorted the market, which gives you an indication that the trend momentum is turning from bearish to neutral. A second close above $1332 would activate a buy signal.

Courtesy: ema2tradelivesignals.com

The second filter that we use in the VC PMI is the average price, which is $1314. With the market closing above $1314, we came into this week with a bullish price momentum. Once we extrapolate from this pivot point, the VC PMI tells us the extreme above and below the mean. If we were close below $1315, it would negate this bullish sentiment and the market would turn neutral. By closing above $1314, the market has activated the sell 1 level of $1326 to $1338. It suggests that you should lighten up or take profits, as the sell 1 level is the extreme above the mean of $1314, and the sell 2 level is the second level of the extreme above the mean. If the market comes down below $1314, it activates the buy level of $1303 to $1291. As we came into this week, gold made a low yesterday of $1304, coming right into this level of demand.

For the past few days, it appears that this level of $1302 and the low made of $1302 on May 1, has been holding, with a test as of yesterday at $1304. We are now rallying from these levels to $1323, moving into the supply zone. Closing above $1325 is going to be extremely bullish because it's kicking in the longer-term trends on the weekly and monthly levels.

Conclusion

The market is sending clear signals confirming the VC PMI's forecast that precious metals are on the way to reaching the original targets we published inSeeking Alpha back in October 2017of $1385 to $1484. The additional confirmation is that the dollar is topping out; if in fact the dollar does follow through to the downside, it's going to precipitate a very bullish signal for commodities in general, and precious metals in particular. It appears to be an excellent time to buy into the gold and silver markets.

Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.



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About the author


After more than 30 years in the financial market business, Patrick MontesDeOca has developed a unique and automated trading tool based on a combination of Elliott Wave, Fibonacci, WD Gann and Vedic Mathematics. This proprietary trading tool, the VC Price Momentum Indicator, is a revolutionary trading tool that identifies major cyclical changes and trading opportunities in the commodities and financial markets with unprecedented accuracy.


Learn how the fully automated VC PMI works, see its trading record, and begin to delve into the way professional traders trade. MontesDeOca, has spent more than three decades trading all types of markets, beginning in 1974 as a legal, banking and trading advisor for several major Latin American coffee exporters. During the 1980s he became a member of the New York Coffee and Sugar Exchange, and the New York Mercantile. He also served as a consultant and technical analyst for the Mexican government. He created the MCTS Markets Commentary, an advanced automated and technically oriented market letter for the financial and commodity markets published daily in Consensus Magazine since 2003. He is a widely published author, technical analyst and commentator in SeekingAlpha.com,  INVESTING.COM, and TraderPlanet.com.The complex multifaceted system is now completely automated and is available from TradeStation Technologies app store.

 
 
contributing author since 12/18/2017 

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