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Quarterly Long-Term Outlook: Gold, Stocks, Oil, and the Dollar

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Traders benefit the most when they trade a trending market. Trading markets are known to be notorious in hitting stop losses on either side, unless one enters near the lower or upper end of the range. In order to help our readers trade on the right side of the trend, we have analyzed the four most followed asset classes – the US dollar, the S&P 500, gold and crude oil.

  • Go long the US dollar index (DXY) near the 94 levels with a stop loss of 91.9
  • Remain long on the S&P 500 if it stays above 2400 levels. Go short only if 2400 level breaks down
  • Look to buy gold in July, as August and September are cyclically strong months
  • Avoid swing trades on crude oil, as it is likely to remain volatile and range bound

We have analyzed both the long-term and the near-term charts and provided our recommendations. Read on to find the best sectors to profit from in the third quarter of this year.

The US Dollar

The US dollar has just ended its worst quarter since the third quarter of 2010. The Dollar lost strength as the central banks of other developed nations like Canada and Europe hinted on an end of monetary easing. Additionally, if the economic data weakens, traders will lose confidence that the US Federal Reserve will be able to hike once more in this year. Doubts remain on the promised tax reforms by President Donald Trump.

Weekly Chart

The US dollar has been stuck in a range for the past two and half years. The breakout in November of last year could not be sustained and prices fell back into the range. Currently, the dollar index is in a strong downtrend that can take it to the 94 levels, which can be a good entry point to play for a bounce as the RSI is close to the oversold zone. However, any pullback will face resistance at the downtrend lines, as shown in the chart.

Daily Chart

After reaching the top on January 03 of this year, the dollar index has been in a steady downtrend. The fall gained momentum and the pullbacks were stemmed at the downtrend line, as shown in the chart. The dollar index will remain weak as long as it trades below the downtrend line.

However, between the current levels and 94 on the lower side, the dollar index will find a bottom. It should offer us a good entry point close to the lower end of the range that can be played on the long side with a stop loss placed beneath the lows of 91.9.

How to Trade the Dollar Index

  1. The Dollar has not fallen for three consecutive quarters since 2009.
  2. Hence, we expect the dollar to rebound in the third quarter.
  3. Traders should go long once price nears the 94 levels.
  4. Stops should be maintained below 91.9 levels and a target of 98 can be expected

The S&P 500

July has notched an average gain of 1.5% on the S&P 500 from 1928-2017. However, as the quarter progresses, the results tend to weaken and finally turn negative in September, according to the chart from Yardeni Research.

Additionally, the post-election July has seen an average gain of 2.2% since 1953, according to the Jeff Hirsch, Stock Trader’s Almanac & Almanac Investor Newsletter and a Research Consultant at Probabilities Fund Management, LLC.

Now, how do we see the third quarter panning out?

Weekly Chart

The S&P 500 is rising inside an uptrending channel. Its trend is clearly up. However, it has not pulled back towards the 50 week EMA since end-October. Therefore, a negative divergence on the RSI becomes that much more important. 2453.8 is the level to watch out for on the upside. If this level is broken out, then a move towards 2480-2500 is likely, where the index will again face resistance. Let’s zoom and see the same chart for more insight.

Weekly Chart

The S&P 500 has formed a wedge, which is a bearish pattern. The index is threatening to break below the trendline support. If it does, the index will start the much-awaited correction.

Daily Chart

The daily chart shows that the 2400-2415 level is currently holding up well, however, the index faces selling pressure close to the 2450 levels. We expect the index to start a correction in the third quarter and reach 2320 levels if it breaks below 2400 levels.

How Should you Trade the S&P 500 in the Third Quarter?

  1. As long as the 2400-2415 level holds, go long on dips.
  2. If 2400 level breaks, look to sell on any rallies for a target of 2320.
  3. A swift pullback at 2320 is likely, hence, close shorts at 2320 and wait for the next setup.

Analysts Forecast for the S&P 500

S&P 500 forecast in March poll S&P 500 forecast in June poll
Mean 2394 2444
Median 2410 2460
Maximum 2600 2630
Minimum 2100 2100
No of forecasters 43 51

The details of each forecast can be seen here.

Gold

Traders should look to buy gold on dips in the month of July. But why?

Since 1975-2016, the second quarter has been the worst for gold and the tide turns in the third quarter, which is the best quarter in the year followed by the fourth, as shown in the chart below.

When we dig further, we find that July is a relatively calm month for gold. Activity picks up in August and peaks in September, which has a good history of strong performance, as shown in the chart below.

What can we expect from gold in the third quarter of this year?

Weekly Chart

The weekly chart shows that gold is stuck in a downtrend, bound within the falling channel. It has been attempting to breakout of the channel for the past one year, but has not been able to do so. A breakout from the channel will signal a change in trend. Let’s zoom-in on the chart and then analyze again.

A Closer Look

On zooming, we find that gold has formed an equilateral triangle pattern. A breakout from the triangle has a pattern target of 1600 on the upside, however, 1400 is likely to act as a stiff resistance in between.

On the other hand, a breakdown from the triangle has a lower target of 840, with major supports at 1120 and 1050. So, what can we expect in the third quarter?

Daily Chart

If we look at the near-term charts, we find that gold has formed an ascending triangle pattern. A breakdown of the triangle will signal a range bound action between 1200-1300 levels for the third quarter. The 20 and the 50-day EMA’s have been crisscrossing each other, which

On the other hand, if the yellow metal finds support at the trendline, it is likely to trade higher towards the 1300 levels.

So, How should Traders Approach Gold?

  1. Look to buy gold on dips in July. We expect higher prices in August and September.
  2. First level to watch is 1235 on the trendline. If this level doesn’t break, we should look to buy on any uptick and move above 1250. The stop loss can be placed below 1230 levels and the target price is 1300.
  3. If, however, the trendline breaks, the traders should look to add close to the 1210-1220 range and keep a stop loss below 1190 levels. The first target price will be 1260 and 1300 thereafter.

Though we are positive on gold for the second half of the year, Robin Bhar, head of metals research at Societe Generale holds a different view. He expects gold to average $1225/toz in the third quarter and $1200/toz in the fourth quarter. He points to the Fed tightening, either by means of higher interest rates or balance-sheet deleveraging as the reason for the fall in gold prices from the current levels.

Crude Oil

Crude oil continues to be in a crisis, as the supply glut has failed to resolve even with the production cuts by OPEC and its allies.

The investment banks are scaling back their lofty forecasts given in December of last year and in the first quarter of this year.

A Wall Street Journal survey of 14 Investment banks have forecast WTI to average $52 per barrel in 2017, a decline of $2 from a similar survey in May.

Goldman Sachs has cut its forecast for the third quarter to $47.5 per barrel from an earlier forecast of $55 per barrel. Similarly, Bank of America has cut its sky-high forecast of $70 per barrel to $47 per barrel for the third quarter. Others like Citigroup, JP Morgan Chase and Societe Generale have also cut their earlier predictions. Where do we see crude oil in the third quarter?

Weekly Chart

Crude oil has been trading in a range of $42-$52 per barrel for more than a year. After breaking out of the range in December, oil spent most of the first quarter above the range. However, in the second quarter, it fell to the lower end of the range as crude oil inventories showed no signs of reducing.

In the third quarter, we don’t expect the range to be broken on either side, unless OPEC and its allies decide to deepen their production cuts or Saudi Arabia abandons the production cuts and starts pumping oil.

Daily Chart

Crude oil is not showing any clear pattern to suggest a trade at the moment. The current pullback is likely to face resistance at the 46.71 and at 48.4. The next fall towards 42 levels will be a buying opportunity. However, traders should wait for a successful retest of the lower end of the range before buying.

What is our Advice for Crude Oil?

  1. Range bound trading is likely to continue in the third quarter.
  2. Difficult to swing trade oil unless we get an opportunity to go long near the $44 per barrel levels

Featured Image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 9 rated postsRakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.




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Analysis

Crypto Update: Divergence Deepens as Altcoins Fall, Bitcoin Flat

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The unusual discrepancy between BTC and the rest of the cryptocurrency market continued today, with the top 10 coins all losing ground with the exception of Bitcoin itself. Tuesday’s surge, which carried the segment to $300 billion in total market cap quickly fizzled out, at least as far as the major altcoins are concerned, but the largest digital currency is still holding on above the strong $7000 and $7350 support/resistance levels.

Altcoins are on short-term sell signals according to our trend model, but Bitcoin is still on a buy signal as the declining trend was broken by the break-out that remains intact, despite the segment-wide weakness.

Given the mixed, but one-sided setup, and the lack of bullish follow-through, odds still favor a bearish outcome, and traders should remain cautious with new positions here, even in BTC, the positive outlier. A broad trend change would require a meaningful leadership, and until that develops, a test of t eh June lows remains likely, with the possibility of new lows in the coming week as well.

BTC/USD, 4-Hour Chart Analysis

While Bitcoin failed to durably stay above the $7500 level, bulls successfully defended the support zone near $7350, despite the overbought short-term momentum readings. The coin is well above the line-in-the-sand $7000 level and the long-term support near $5850 that was in danger just one week ago.

Although the altcoin weakness makes BTC’s rally suspicious, the short-term bullish pattern is intact, as is the buy signal in our trend model. Further support is found at $6750, and $6500, while primary resistance is still ahead at $7650.

Selling Pressure Apparent in Altcoins

ETH/USD, 4-Hour Chart Analysis

All intraday rally attempts have been sold so far in most of the major altcoins, and Ethereum is just holding up above primary support at $450 despite the rally in the beginning of the week. The coin is on a short-term sell signal, and a test of the June lows is likely after the failed break-out. Strong resistance is ahead at $500 and between $555 and $575, while support is found at $420, $400, $380, and $360.

XMR/USDT, 4-Hour Chart Analysis

While Monero has been holding up relatively well in the last couple of days after getting stuck below the $150 level during the Tuesday surge, but the coin is still among the structurally weak majors, being on a long-term sell signal. As the other bearish leaders, NEO, LTC, and Dash are also trading below key long-term levels, we expect the coin to fall back below the $125 support and likely test the June lows in the coming weeks.

XRP/USDT, 4-Hour Chart Analysis

The third largest coin Ripple is already testing the $0.45 level after drifting lower ever since the Tuesday rally, and as its relative weakness is still clear, a break below that level seems to be imminent. Below that, the crucial long-term support zone near $0.42 could stop the decline of XRP again, but a move under that could trigger a long-term sell signal.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 297 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Forex Update: Boring Means Long-Term Sustainability for EUR/INR

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Billionaire investor George Soros once said, “If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.” As an experienced investor, I couldn’t agree more. There’s a lot of waiting and sitting involved but that’s how money is made in investing. The Euro/Indian Rupee (EUR/INR) pair seems to be the perfect embodiment of this quote.

Looking as far back as 1999, it appears that EUR/INR has been in an unstoppable bull run since the second half of 2002. If you invested in the pair a decade and a half ago, you would have more than doubled your money. Chances are you didn’t, but don’t fret because you can always invest today. EUR/INR looks as strong today as it did back then.

In this article, we show how EUR/INR is looking strong on all counts despite being boring.

Healthy Ascending Channel on the Daily Chart  

EUR/INR dropped to as low as 67.9819 on April 10, 2017 and it was nothing but blue skies since. It is trading within an ascending channel as it generates higher highs and higher lows in a sustainable manner. The ascending channel looks healthy, too, as the trading range is not significantly contracting or expanding.


Daily chart of EUR/INR

If you look at the technical indicators, everything is fairly clear. EUR/INR rallies when it flashes oversold readings. On the other hand, it corrects when it is overbought. You won’t find excitement here and that’s good news for long term investors.

Concluded Corrective Wave on the Weekly

EUR/INR started showing signs of weakness in September 2013 when it posted a shooting star weekly candle. The ensuing pullback drove the pair down to the 65 levels in March 2015 (A-wave). The market has not visited that price area since. It managed to generate a bullish higher low setup at 68 (C-wave). This was a clear signal to investors that the correction was over.

Weekly chart of EUR/INR

With a higher low in place, EUR/INR took out resistance of 76. The new support level was tested and retested before the pair mounted a strong rally. On top of that, we can see a hidden bullish divergence on the weekly RSI, hinting that the uptrend is in a good shape.

Even in the weekly chart, the market is not pulling any surprises. There are no false breaks and no shakedowns. You don’t have to look close to see where the market is headed. EUR/INR is boring and that’s why it is strong.

Major Support Line on the Monthly Intact

Conventional wisdom says to buy low and sell high. The problem with this is that you don’t really know when is the market low. The market can go down as there’s always the possibility that a key support can break. That’s just not the case for EUR/INR.

Monthly chart of EUR/INR

Buying low is fairly simple in this case. All investors have to do is to wait for the price to hit the long-term support. Investors can be confident in doing so because the trend line has been intact for over 15 years. More importantly, it bounces every time it hit the support. It’s not really exciting but it works.

Bottom Line

A famous billionaire trader once said that good investing is boring, and I agree. Look at the charts of EUR/INR and you’ll see why boring investing is good.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 201 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Pre-Market: China Tries to Support Markets as Global Stocks Slide

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Yesterday’s risk-off shift continued today in early trading with nervous and choppy trading in Asia and Europe, as global financial markets are still haunted by trade war fears and emerging market weakness. The major US indices rolled over after another period of apparent relative strength, with the Nasdaq being the most robust market once again, while most of the key European benchmarks continue to lag behind.

S&P 500 Futures, 4-Hour Chart Analysis

Chinese assets are still in focus before the weekend, as the Yuan’s recent steep devaluation sparked fears of a credit meltdown in the country. With the largest credit bubble in human history casting its shadow on China, some analysts think that with Trump’s trade war, the bug finally found its windshield and the bubble already started to burst.

USD/Yuan, 4-Hour Chart Analysis

All eyes are on the USD/Yuan pair as Chinese authorities are reportedly intervening in the market of the currency, and most likely local equities as well, trying to prevent a serious run on the most important assets.

With the Chinese stock market already in a bear market, and the Yuan trading at fresh 12-month lows against the Dollar, it might be a bit late to stop the slide, but the intervention could cause spectacular short squeezes.

Italy also made headlines today during the European session, as Italian government bonds got slammed lower, as the future of the new finance minister is uncertain, with another round of political turmoil possibly ahead for Europe’s most vulnerable country.

Unicredit (UCG), 4-Hour Chart Analysis

Looking at the charts of Italian banks, it’s clear that the spring turmoil had a lasting effect on the financial system, as Unicredit is on the verge of hitting a new low, and the other large players also remain under pressure, in part explaining the general weakness in European equities.

Europe Still Far Behind amid Mixed Economic Numbers

USD/CAD, 4-Hour Chart Analysis

The economic calendar is almost empty today with regards to the key markets, as the Canadian Retail Sales and CPI reports are the most important releases. The Canadian Dollar rebounded when the USD entered a correction June, but now the currency edging lower again, as the weakness in commodities and the Greenback’s rally are taking their toll. New highs are likely in the USD/CAD pair in the coming weeks, although strong resistance is just ahead at 1.33.

Commodities are little changed today after yesterday’s volatile session, as the bounce in China helped to stabilize the segment. Notably copper is back above the key $2.70 level, while WTI crude oil is trading at $68 per barrel again, and gold is hovering around $1225.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 297 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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