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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: Bitcoin Touched $4000 as Broad Rally Continues

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Yesterday’s break-out to new short-term highs continued today in the cryptocurrency segment, with Bitcoin’s push towards the $4000 making headlines in the segment. The most valuable coin surged past the $3850 level, dragging most of the majors higher, but Ethereum and most of yesterday’s leaders lagged behind BTC during today’s session.

That said, the short-term trend remains positive in case of the majority of the coins, and even though some of the top currencies are overbought, the counter-trend move could continue. In light of the increased activity, trading volumes, and volatility in the market, the majors might be in for a more sustained bullish, move, and as now only Ripple is showing clear signs of relative weakness, despite today’s rally, the leadership of the short-term move looks healthy.

While the long-term picture is still clearly negative in the segment, until the newly established short-term uptrends remain intact, traders could still play the move, sticking to strict risk management rules and relatively small position sizes.

BTC/USD, 4-Hour Chart Analysis

While Bitcoin left behind the initial resistance level near $3850, and quickly rallied up to the strong longer-term zone between $4000 and $4050, it might need to consolidate before another push higher. BTC is slightly overbought from a short-term perspective, and given the significance of the resistance, traders could exit a part of their positions here.

The $4000-$4050 zone stopped the year-end rally (outside of a brief, failed break-out), and a move above it could open up the road towards the $4250 and the crucial $4450 levels. Below $3850, further support is found near $3600 and just above $3450, and our trend model remains on a short-term buy signal and long-term sell signal.

ETH/USD, 4-Hour Chart Analysis

Ethereum continues to trade near the $145 resistance level following yesterday’s surge, and bulls are still eyeing a test of the next major resistance zone near $160, which marked the top of the previous counter-trend move in the coin.

While the coin is still overbought form a short-term perspective, given the momentum if its recent move, the rally could continue after a brief consolidation period. The newly-established uptrend is intact in ETH, and traders could enter new positions should the overbought readings got cleared, with support levels found near $130 and $112.

XRP/USDT, 4-Hour Chart Analysis

Although Ripple continues to be relatively weak compared its major peers, today it spiked to a new 5-week high, riding the market-wide trend and testing a strong declining trendline in the process. The coin triggered a short-term buy signal in our trend model by topping its January swing high, but given its relative weakness, traders should focus on the more bullish coins during the current counter-trend move.

The long-term setup remains negative, and from a broader perspective, odds still favor the test of the key long-term $0.28 and $0.26 levels, with further support levels found near $0.32 and $0.30, and with short-term targets being ahead near $0.3550, and $$0.3750.

EOS Continues to Lead but Litecoin Struggles to Gain Ground

LTC/USD, 4-Hour Chart Analysis

LTC continues to trade slightly above last week’s highs but compared to the leaders of the current leg of the rally it remained relatively weak today. With that and the still negative long-term setup in mind, traders should exit a part of their positions here, even as the short-term uptrend is intact and a push towards the next major resistance level near $51 is still possible. Our trend model is still on a buy signal, as a failed break-out is not yet confirmed, with support levels still found near $44, $38, and $34.50.

EOS/USD, 4-Hour Chart Analysis

EOS remained relatively strong today, spiking above the $3.80 level after leaving behind the $3.50 resistance. Now, the coin is clearly overbought from a short-term perspective, and that led to a downgrade in our trend model as a pullback is now likely.

The short-term trend remains bullish despite the correction risks, and should the coin clear the overbought momentum readings traders could reenter their position following strict risk management rules. Support is now found near $3.50, $3, and $2,80 while strong resistance is ahead near $4.50 and $5.

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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4.7 stars on average, based on 466 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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Altcoins

XRP Price Analysis: Explosive Breakout from Pennant Confirmed; SBI Holdings CEO Bullish on XRP

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  • XRP/USD is enjoying three consecutive sessions of gains, having jumped around 17%.
  • SBI Holdings CEO believes XRP market capitalization will be higher than bitcoin’s.

Ripple’s XRP price has been enjoying a decent move to the north over the past few sessions, as life flows back into the bulls. XRP/USD is currently running at a third consecutive session in the green, having gained around 17% within this period. The explosion of buying pressure came after the price managed to escape a bullish pennant pattern.

XRP/USD: Price Recap

XRP/USD had initially been cooling since the big bull run at the back end of 2018. The price rallied on 24th December up to a high of around $0.4670, before quickly losing upside momentum. It was then forced to trade within the confinements of a descending wedge pattern. XRP lost over 30% in value before it was able to break out from the wedge.

On 8th February a chunky push higher from the bulls was observed, resulting in a breach of the upper acting trend line. XRP/USD jumped around 10% on this day but then eased south to retest the trend line for a few sessions. During the cooling period, price action has formed a pennant structure which saw an eventual big breakout to the upside, as described earlier.

SBI Holdings CEO Bullish on XRP

The SBI Holdings CEO, Yoshitaka Kitao, was recently speaking on XRP and said this year is a significant one for the so-called banker’s cryptocurrency. He believes that the market capitalization of XRP is likely to dwarf bitcoin’s at some point in the future. Kitao has firm belief in the future sucess of XRP and can see it being adopted on a global scale. He was quoted saying:

“Because XRP is already beginning to become international, xRapid will be used for fund transfers in 2019. By increasing the so-called XRP’s plastic use, we anticipate that the XRP market capitalization will easily exceed the market capitalization of bitcoin.”

SBI has many joint ventures set up with Ripple across the blockchain industry; it’s therefore not too surprising to see such comments. The organization will also be launching its very own cryptocurrency exchange called VCTRADE, scheduled for March. Deposits and withdrawals for bitcoin, XRP, and Ethereum (ETH) are already available on the platform.

Technical Review – XRP/USD

XRP/USD daily chart.

Given current upside, eyes must now be on the next likely barriers of resistance for the bulls. A supply area noted from $0.3450 up to $0.3600 is the next target; XRP has not traded comfortably above this region since 10th January. A break above this zone should put the bulls in an excellent position to retest the $0.4000 area. On several occasions, this price territory has caused issues for the bulls in their attempts to push further north. In terms of support, this is seen back down at the psychological $0.3000 mark. If that fails to hold, then there is a demand which runs from $0.3000 down to $0.2500.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of 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 124 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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3 Things You Need to Know About the Market Today: New High in Gold, Dow 26,000?, Euro Weakness

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1, Gold Jumps to 9-Month High, $1360 in Sight

Gold Futures, 4-Hour Chart Analysis

We have been following the resurrection of gold in the past few months, and since fundamentals just got better for the precious metal, the current technical strength is great news for long-term investors. Today, gold quietly reached a new 9-month high, despite the still ongoing risk rally and the relative strength of the US Dollar.

The metal topped the $1330 level, and with the next major resistance level being found near $1360, a quick surge to the vicinity is in the cards in the coming days. We continue to advise holding gold for the long run, and for now, the short-term technicals also remain bullish. Should the risk rally finally roll over, the uptrend could even accelerate, with longer-term targets being found near $1400 and $1550.

2, US Stocks Drift Lower After Long Weekend as Trade Talks Resume

Dow 30 Futures, 4-Hour Chart Analysis

US stocks are having a quiet start for the day, with the major indices drifting slightly lower following the long weekend. The US economic calendar is empty today, and all eyes will be on the trade talks with China which are set to resume today in Washington in the wake of the unexpected extension of last week’s round of negotiations in Beijing.

The Dow, which approached the 26,000 level last week during the Friday surge to new 9-week highs, is lower today, in-line with the market-wide trends. The mega-cap index could get a lift in early trading thanks to the better-than-expected quarterly report by Walmart (WMT). The firm’s holiday-quarter sales topped estimates, despite the reports regarding the widening growth-gap between online and brick-and-mortar stores, and in light of the positive guidance by the company, the pre-market surge in the stock is no surprise.

With the week’s main economic releases coming in the second half of the period, today we could be in for another choppy session on Wall Street. That said, the momentum of the recovery-rally continues to be suspicious, and especially given the weakness in the Nasdaq, investors should pay close attention to the Volatility Index (VIX), market internals and other under-the-hood indicators for signs of negative divergences.

3, Euro Under Pressure Again, Despite Sentiment Beat

EUR/USD, 4-Hour Chart Analysis

While the Dollar’s break-out to new multi-year highs still didn’t happen last week, technicals continue to agree that the long-term uptrend in the reserve currency will continue. The Euro, on the other hand, is still showing signs of broad weaknes, drifing lower against the Dollar and the Pound today, despite the better-than-expected German Zew Economic Sentiment report.

The indicator is still deep in negative territory, and together with the recent weakness in the Eurozone PMIs and industrial production, recessionary fears seem to be legit in Europe.

We will have a new batch of PMIs coming out tomorrow, and together with the Fed minutes a huge day could be ahead for forex markets and especially for the EUR/USD pair. The 1.12 level could be tested in the case of another negative surprise in the PMIs, while the Fed minutes will be under scrutiny even more than usual following the sharp dovish shift by the Central Bank.

ChartBook

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

Nasdaq 100 Futures, 4-Hour Chart Analysis

VIX (US Volatility Index), 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

FTSE 100 Index CFD, 4-Hour Chart Analysis

EuroStoxx50 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/USD, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

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 466 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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