S&P, Gold at Crossroads
Both the stock market and gold seem to be at a crossroads, trading in a choppy fashion. Market participants are wondering whether the worst of the credit crunch is over, and whether the Federal Reserve will continue cutting interest rates or turn to inflation fighting. Let’s take a quick look at what technicals show for the S&P 500 and gold futures.
S&P
June S&P futures closed lower Tuesday, April 8, consolidating with no meaningful change. The release of the Federal Open Market Committee’s March 18 meeting minutes brought weakness to the market overall, as Fed officials signaled they may slow the pace of interest-rate cuts, but at the same time, saw a "prolonged and severe downturn'' possible. The next policy meeting comes up on April 29-30, and currently, the market is anticipating a quarter-point cut in the federal funds rate, down to 2 percent.
From a technical standpoint, momentum indicators, the stochastics and the relative strength index (RSI) are turning bearish and are overbought. These indicators are hinting at a near-term top after the rally from near 1280 to up 1388. The market is consolidating below the 38 percent retracement level of the 2007-2008 decline at 1385.
On a renewed rally, 1391, the reactionary high, is my resistance target. The market came quite close to that level Tuesday.
Currently, I see the bias as mixed and neutral for stock index traders. Economic uncertainty remains, and we are in midst of a bleak-looking first-quarter earnings season. As the market doesn’t like uncertainly, I would lean toward the bearish side as the stronger trend. Watch 1351 as support.
Gold
June COMEX gold futures have fallen more than 12 percent since their record-high peak above $1,000 an ounce on March 17, and like the S&P, I see this market at a crossroads. June gold closed below the 10-day moving average at $922 Tuesday, April 8, a bearish technical sign. The RSI and stochastics are also bearish and hinting at a downturn. However, if this market sparks and closes above $947, the 20-day moving average, that would nullify this idea and suggest a near-term low has been posted.
If June gold faces a decline, watch $854 as support, the 50 percent retracement level. I think this market is in a trading pattern without a real clear direction. The U.S. dollar is still consolidating and as it has been trading inversely to gold, is key to its direction.
The ICE June Dollar Index futures needs to break out of a triangle pattern near the range of $73.50 – $71.50 to give better directional cues to commodities. Keep your eye on the dollar at all times when trading metals and other commodities.
Please feel free to call me at 866-231-7811 or contact me via email at jfriedman@lind-waldock.com if you have questions on this topic or to discuss specific trading strategies for your unique situation in this or other markets.
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