Nadeem Walayat
November 2, 2009
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 -
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.
By Nadeem Walayat
http://www.marketoracle.co.uk
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Nadeem Walayat
http://www.marketoracle.co.uk
