Forex & commodities on December 11, 2017: thoughts & outlook


Here are my discretionary thoughts on forex and commodities (oil, gold, silver, etc). I only trade the S&P 500’s ETFs.

Thoughts

  1. A mini-crash in gold/silver will be the perfect buying opportunity.
  2. USD Index bounce to 96 when tax cut is passed?
  3. An oil trader thinks WTI will rise to $62-$63 before making a large pullback to $55.
  4. Oil faces several big medium term resistances.
  5. The Euro’s sentiment is bearish, and price action confirms this.
  6. Everyone is looking for year-end “dump and pump” in gold.

4pm: a mini-crash in gold and silver will be the perfect opportunity.
Gold and silver are grinding lower day after day right now. These declines typically end with a divergence and then a large 1-2 mini-crash. This will be the perfect buying opportunity, considering that January is a very bullish seasonality for precious metals.
$15 is a good target for silver, and $1220 is a good target for gold. Here are weekly charts for silver and gold.


4pm: USD bounce to 96?
When the Republican tax cut is signed into law, I think the USD Index will bounce to 96. Several big resistances confluence here. Even if the USD is in a bear market, I think it will still bounce to 96.

  1. A 38.2% retracement of this year’s entire decline is 96. Bear market rallies frequently retrace 38.2% of the prior decline.
  2. The 200 daily moving average is just below 96. The market rarely just touches the 200 sma – it tends to overshoot.

4pm: An oil trader thinks WTI will first rise to $62-$63
I talk with a really good oil trader on a regular basis. He thinks that WTI oil will first rise to $62-$63 before making a larger pullback to $55. His hypothesis can be supported from a fundamental perspective.
I mentioned in a weekend post 

U.S. producers have made it clear that they’ll significantly ramp up production and rig counts if oil rises above $60 for an extended period of time.

This means that supply will increase significantly when oil rises above $60 by more than $1 or $2.
4 am: Oil faces several big medium term resistances
I think WTI oil will remain range-bound from $50-$60 and slowly move up in 2018 as production costs rise. Oil faces several large resistances right now, which increase the odds of a larger pullback.
Oil is capped by its 200 weekly moving average. The 200 weekly moving average is commonly used as a bull/bear line (crossing above the moving average = bull market, crossing below the moving average = bear market).

In addition, oil’s weekly RSI is a little high.

Oil has retraced 38.2% (fibonacci retracements) of its 2014-2016 crash.

Where will oil pullback to? I have no idea. Perhaps $50, or perhaps $48 (oil likes to overshoot its targets). Regardless of the target, I think oil traders should play on the long side and not the short side.
4 am: the Euro’s sentiment is bearish
Commercial hedgers (smart money) are very bearish on the Euro right now. But sentiment itself is not enough – price action needs to confirm sentiment.
During strong bull markets, hedgers can be extremely bearish and be forced to cover their shorts as the market rises. This happened in 2007 when hedgers were bearish, the Euro kept rising, and hedgers covered their shorts.

The Euro is painting a different story today. Hedgers are extremely short, but the Euro isn’t rising. This flattening price action with regards to sentiment is a bearish sign for the Euro and bullish sign for the USD.
5 am: year-end “dump and pump” in gold and silver
Gold has followed the same pattern over the past 4 years: fall in December and rally in January.
Here’s 2017.

Here’s 2016.

Here’s 2015

Here’s 2014

Will this pattern repeat this year? Perhaps. Gold is getting crushed, and a lot of traders expect it to rally in January 2018.

4 comments add yours

  1. Troy,
    There is one objection with this gold pattern in “this year, the crypto currency year”. I have been hearing a lot of chatter that people are beginning to use Bitcoin “fake crypto currency” as a means of using this instead of gold? Could this year be different with the January trend of gold rising because of people using Bitcoin instead of gold for the same purpose of gold rising?

    • There is a general multi-month inverse correlation between gold and Bitcoin. But on a month to month basis, the two can move in same direction. The correlation isn’t that strong.

  2. Cameron Winklevoss, half of the twins made famous by their role in Facebook’s FB, -1.16% early years, told Bloomberg he believes bitcoin is a “gold disruptor” that could see 20-fold gains.
    He bases his hugely bullish projection on a $6 trillion market value for gold GCG8, +0.31% explaining that investors appear to be warming up to the idea that bitcoin is more portable and divisible than the precious metal.

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