Gold Cautious Moving Forward

Loose monetary policies have caused a surge in commodities and stock markets around the world. Part of the surge in gold prices have been attributed to the weakness of US dollar where investors dump US dollars in the expectation that inflation will raise and Gold will better preserve value.

However, US dollar has strengthened considerably this week. For example EURUSD currency pair dropped below the 1.430 level with EURUSD currency pair on Friday’s trading session.

So where is the direction of gold heading?

The phase chart is still in bullish phase. However, warning signs are appearing. The price dropped below its 50 day moving average on Thursday briefly dipping to “Warning” phase. It is still early to talk about a trend reversal at this stage but the price behavior warrants some caution as a drop below its 50 day moving average is a sign that investors may start to take some profits off the table.

China Still In Bullish Phase

Shanghai Stock Index is following a cup and handle pattern that shows a long term upside breakout. The upside target is 3400 which is very near to the Friday’s closing level of 3317.

The phase chart is still showing an uptrend that re-established itself on 19 Oct 09 after dipping below its 50 day moving average.

The next resistance level is at 3400 level and it will take a lot of conviction from the bulls in order to close this level.

STI Still In Bullish Mode

Singapore’s Straits Times Index has been flirting with its 50 day moving average. The index has moved below the 50 day moving average on several occasions only to stage a rebound to close above it. The 50 day moving average is now at 2668 and this will be a critical support level going forward.

The phase chart is now back in “Bullish” phase although it went into “Warning” phase in the first 2 weeks of November.

The index is also showing difficulty in moving above 2740 level. Break above 2740 will mean a target objective of 2900. Let’s see if the bulls can keep the rally going.

SGD Getting Stronger

US dollar is continuing its bearish trend with respect to the SG dollar. The US dollar index, which tracks the greenback against the currencies of six major US trading partners, has fallen 15% from its peak this year.

The phase chart of US dollar and SG dollar currency pair is clearly on a downtrend. The phase chart has stayed in “Bearish” mode for most of 2009 till date and there is no sign that this trend will reverse any time soon.

One of the main concerns is whether US dollar will lose its status as the main reserve currency. If this happens, it will accelerate the fall of USD.

STI Updates

We are halfway through the month of September. The correction that most people are anticipating is nowhere in sight.

The phase chart for STI is still in "Bullish" phase. The strategy now is still buy on dips and to stay with the bullish uptrend.

So long as the 50 day moving average is not broken, the market should still be on an uptrend.

Shanghai Market

The Shanghai stock index has moved to “Warning” phase since 14 August 2009. It broke its 50 day moving average with ease on 14 August. The subsequent rebound from 2800 level met with strong resistance at the 3000 level.

It seems that the Chinese government is trying to prevent a new stock market bubble from forming. However, it does seem that the Chinese government also does not want the market to drop too much.

Nevertheless, weakness is beginning to show on the charts. The index has traded in “Warning” phase for 11 trading days now.

The next support level is at 2800 level. If the index breaks through this level, it will complete a lower high and lower low pattern. This will mean a possibility for the index to test its 200 day moving average.

Hang Seng Index

Hong Kong stock market has been on a run since hitting its low on March 09. The phase chart turned “Bullish” at the end of May 09 and has been maintaining its bullish stance since then except for a dip to “Warning” phase on 13 July 09. That dip proved to be a buying opportunity.

The market has stayed in “Bullish” phase for 50 days now and it looks set to continue. However, investors who are looking to add new long positions may be better off waiting for a test of the 50 days moving average before entering. As in all market developments, this market will not move up in a straight line.

STI In Bullish Phase

Singapore STI has snapped back into bullish territory. The index tested its 50 day moving average in mid July before staging a rebound. The index is now above 2500 level and is at Sep 08 level.

The party looks set to continue.

Dow Is In Bullish Trend

When everyone is expecting the market to correct, it proved otherwise. The head and shoulder pattern did a reversal and the Dow is back above 8700. The breakdown below 8000 points did not occur.

The phase chart is showing a “Bullish” signal for the index. The indicator moved into “Bullish” phase on 15 July and has maintained bullish stage for 3 trading days. The trend is clearly in favor of the Bulls.

Shanghai Stock Index

Shanghai stock market is approaching the critical 3000 level. The Shanghai market moved into “Bullish” phase since 10 Apr 09. There were corrections along the way up from 2444 to 2928. However corrections were shallow showing the strength of this rally.

No one knows exactly how far this rally will go but the bulls have the upper hand at this stage. Any pullback should see support at 2828 level, the previous pivot high.

The Trend Of Oil Price

The price of crude oil ended near the $70 mark per barrel. The price of oil is one of the determining factors that influence the movement of stock market. When the price is too high, the fear of inflation kicks in. When the price is too low, market participant infer that demand for oil is low which gives the perception the economy is slowing down.

Such is the love and hate relationship that market participant has with oil price.

Looking at the phase chart of USO (United State Oil ETF), the price of oil is facing the 200 day moving average resistance level. The price is sandwiched between the 200 day and 50 day moving average. It is still in “Recovery” phase.

If the price is able to bounce off from the 50 day moving average, it will be a sign that investors are betting on higher oil price in the coming months. Looking at the technical charts, oil price should have further upside.

STI

STI moved to "Bullish" phase on 29 May 09. The last time the index moved to "Bullish" stage is on Oct 07.

Analysts are still debating on whether this is a bull or bear market rally. But judging on the phase chart, it is clearly showing an uptrend.

Bullish Taiwan

Taiwan stock market is one of the few markets that has entered “Bullish” phase. Relationship with China has improved since Ma Ying Jeou took over as president. Nine groundbreaking accords had been signed so far, covering areas such as direct sea, air and postal links.

Taiwan’s benchmark index made a bullish crossover on 7 May whereby its 50 day moving average crossover its 200 day moving average and has not turned back since.

The trend is clearly positive and investors can consider entering into this market on pullback.

Nasdaq

Market participants are waiting for a pullback in stocks and it looks like the pullback has already started.

The Nasdaq index went briefly above its 200 day moving average, stayed above there for a few days and it has now drop below its 200 day moving average. It looks more and more like a false breakout.

The phase chart is now at “Recovery” phase moving down from “Accumulation” phase. It looks set to test its 50 day moving average.

The selling will intensify if the 50 day moving average is taken out by the bears.

STI

STI index has started its decent from its recent rally. The index has stayed in “Recovery” phase since 4 May 09. The 200 day moving average is at 1985. Since Jan 08, the 50 day moving average has been below its 200 day moving average with the index firmly below the 200 day moving average. May 09 marks the first time in more than a year in which the index stayed above its 200 day moving average.

The market is still not decided on whether it is a beginning of a new bull market or simply a bear market rally.

The next milestone to look at is to see whether the 50 day moving average can go above its 200 day moving average.

Gold In Warning Phase

Gold price has fallen back to January 09 levels as seen in the price action of SPDR Gold Shares.

It is currently in “Warning” phase with the price stuck between its 200 day and 50 day moving average.

In April trading, the price of SPDR Gold Shares bounced off its 200 day moving average twice. It looks set to test it again with a downward sloping 50 day moving average.

For the bears, a good opportunity will be to short gold when it goes below its 200 day moving average. For the bulls, they will be looking at a break away from the 50 day moving average as confirmation of the continuation of the uptrend.

STI Update

STI continued its bull run and is now at 1896 level. The index has stayed 19 trading days in “Recovery” mode. The index is showing some fatigue as it approaches its 200 day moving average of 2075.

Similar pattern is seen in US market with the Dow Jones Industrial Average ascent slowing down as it approaches its 200 day moving average of 9230.

The pullback if it happens will tell us whether this is a bear rally or beginning of a bull run.

STI Update

Singapore stock market is having a good run. The index is now 6.8% above its 50 day moving average.

From the phase chart, we are now in “Recovery” mode. The index has moved into “Recovery” mode 4 times since it went into “Bearish” mode in the beginning of Jan 2008.

The index is facing resistance level of 1780. We have not seen such strength in the market for a long time now. Hopefully it can clear this level and proceed to test its 200 day moving average.

China Market

Shanghai Market is among the better performers in 2009. The Shanghai composite index has managed to stay in “Recovery” mode since early Jan 2009.

The index is now sitting between the 50 day and 200 day moving average. The index climbed from a low of 1664 to hit a high of 2402 before pulling back to current levels. That is a gain of almost 45% in a span of about 5 months.

The slope 50 day moving average is turning positive which is a good sign. The 200 day moving average is still moving with a downward bias.

The index will have to go above 2359 in order to move to “Accumulation” phase. Let’s see what happen this week.

Have a great time trading the market and remember to follow the trend.

STI

Dow closed at 7062 on Friday, down 119 points. The index has fallen through the bottom set in Nov 08.

STI is also following a similar pattern. It is now at 1594 points. It looks likely that the index will go below the low of 1473 set on 28 Oct 08.

The phase chart is showing continuing weakness. The index is still in “bearish” territory. It did go above its 50 day moving average for a while however the momentum could not be sustained. Singapore market, being an export dependent economy, will need other countries especially US and China to recover first before our own market can climb out of the doldrums.

US Financial Sector Update

The Dow Jones Industrial Average broke its Nov 2008 lows this week. It closed below its psychological low of 7552.29 on Thursday trading session. This point to further weakness down the road and the index may go down further to test 6000 level.

Rumors that Bank Of America and Citigroup could be nationalized brought pressures to the financial sector. The White House on Friday insisted that the US government is not trying to take over the two financial institutions. Bank Of America closed at $3.79 and Citigroup closed at $1.95.

The financial sector is still deep in “Bearish” territory. Looking at the XLF, the sector fund tried to move out of “Bear” territory but fell right back into it on 7 Jan 09. It has since stayed in “Bearish” phase for 31 trading days.

It looks like the market needs to find a lower bottom before a rebound can take place.

Commodity Sector

Commodity seems to be making a come back recently. The Baltic Dry Index (BDI) has rebounded from a low of 663 on 5 Dec 08 to close at 1642 on 6 Feb 09. Commodities related stocks in Singapore showed strength this week.

Let’s look at the commodity sector as a whole to see which phase we are in.

The iShares S&P GSCI Commodity-Indexed Trust is a fund that investor invest in a portfolio of exchange-traded futures contracts tracked by the index. The index currently tracks 24 different commodities. It is weighted with approximately 67% invested in energy, 16% in agriculture, 7% in industrial metals, 7% in livestock and 3% in precious metals. The index is production weighted to reflect the relative significance of those commodities to the world economy.

The GSCI commodity index trust is now sitting in “Bearish” mode. The index tested its 50 day moving average on 6 Jan 09 but was not able to maintain its bullish momentum.

The index looks to be forming a double bottom and the 50 day moving average looks to be forming a base. It is too early to be bullish on commodities based on the phase chart. We need more evidence of a sustainable rally and the picture will look better if it can move above its 50 day moving average.

US Financial Sector

Dow Jones Industrial Average closed slightly above 8000 points on Friday. The index was down 148 points on Friday after falling 226 points during Thursday’s session. Sellers are definitely in control.

In order for the market to recover, the financial sector needs to stabilize first and banks will need to provide liquidity to push up the market.

A look at the XLF shows that the financial sector in US is still trying to find a bottom. Unlike the Dow, XLF actually went below its Nov 08 lows of $8.54 on 20 Jan 09 before rebounding to a high of $10.51 on 28 Jan 09. It closed at $9.24 on Friday.

The phase chart shows that XLF is still in “Bearish” territory. It tested the 50 day moving average in the beginning of January. But the resistance proved too much for the bulls to overcome and sellers are gaining control again.

The next support level for XLF is at $8.00 level and if this support is broken, it will mean more pain for the bulls.

STI Update

STI index is testing its 50 day moving average again. Based on the Wednesday closing level, phase chart for STI is still in recovery mode with the index above its 50 day moving average of 1759.

However we are now seeing the index at 1711 (10 am Singapore time), which pushes the index back to “Bearish” mode.

With Singapore’s budget day approaching, the bears may close their positions to avoid any surprises next week.

Let’s see if the index is able to push back above its 50 day moving average today. It is finding support at 1711. That is the low set on 24 Dec 08.