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Analysis

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.

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  • 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.

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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

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Analysis

Technical Analysis: Litecoin and Ethereum on the Move as Rotation Continues

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The altcoin bull run continued today despite the US Thanksgiving holiday, as trading remained active in the majors, and another important break-out occurred, this time in Ethereum. Litecoin is also strong today, and the coin is testing the key $75 resistance level, as it follows in the track of ETH again. The currency still looks set to hit the next target at $82.50, with the all-time highs below just below the $100 level also in sight. While the long-term momentum is edging towards overbought territory, the coin remains bullish on both time-frames, with strong support still found at $64 and $56.

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LTC/USD, 4-Hour Chart Analysis

Ethereum scored a new record high after moving past $400 for the first time in five months, and considering the lengthy consolidation before the move, more upside is likely for the second largest coin. With the long-term momentum still not being overbought, the token’s price might test the $500 mark in this leg higher, with Fibonacci targets ahead at $475 and $512. Support levels are found below $400 at 4380 and $350.

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ETH/USD, 4-Hour Chart Analysis

Ripple is also attempting another bullish move, while Monero and Dash are consolidating just below their recent highs, while IOTA is in a short-term correction pattern as well. More and more altcoins are now in the latter phases of their rallies, just like Bitcoin, but traders still have opportunities with favorable risk-rewards ratios. Let’ see the short-term charts.

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Analysis

Break-Out: Another Crazy Rally in Ethereum?

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What crazy rally you might ask? Bitcoin is the star, right? Everything was about BTC (and BCH) in the last few months, and lots of traders forget the gains that ETH posted amid the take-off of the ICO Rocket during the spring.

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Comparing ETH and BTC in 2017

By the numbers, out of the two largest coins, 2017 is still the year of Ethereum as the 3600% rise in the token’s price dwarfs Bitcoin’s impressive 630% gain. Could Ethereum be on the verge of another epic surge? Before answering that question, first let’s see what happened with the coin in recent months.

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How Did We Get Here?

ETH/USD, Daily Chart Analysis

Ethereum finally broke above the magical $400 barrier that has kept a lid on the token’s price for five months after the crazy run-up in May. What first followed after that stellar move, was a 70% decline top-to-bottom, with a flush-out panic low in July.

Our trend model turned long-term positive even before the spike lower, but since then, the coin only managed to get close to the all-time highs, while Bitcoin eclipsed the previous star with its dominant performance. Now the tide might be turning, as ETH is finally gathering bullish momentum and today it breached the $400 mark, flirting with a break-out from the giant triangle consolidation pattern.

(more…)

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Altcoins

Zcash Dip Offers Chance to Buy

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The ZEC/USD pair went into a downtrend for several days after hitting the 435 level in June. It shed more than half of its value before establishing strong support at 140. The market tried to reclaim resistance at 310 twice, but was sent back on both occasions. As a result, we have a massive reversal structure that might skyrocket the pair into a new all-time high.

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The market closed above 310 a couple of days ago on weak volume which is why it’s struggling to stay above that level. Technical indicators show that momentum is weakening, increasing the likelihood of a dip. A slight correction not only gives the market legs for its next move up, but it also offers you a chance to place orders.

They key indicator to watch for is volume. As long as volume remains sluggish, the market will most likely slide down to 280 first and then 262 next. That’s a good zone to accumulate positions. If volume suddenly spikes, at least 230k at Bitfinex, then we have a legitimate breakout that will take the market to 465.

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 Summary of Strategy

Buy: between 280 and 262 OR confirmed breakout with volume of at least 230k at Bitfinex

Support: 280, 262, and 243

Resistance: 310, 352, 400, and 412

Target: 465

Stop: If the market breaches 243

 

Disclaimer: The writer 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.

 

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