I think Gold does have the potential to drop more but only if the Greenback breaks free. Suddenly, we don’t see so many commercials for gold on television, do we? There is no such thing as Gold being the new reserve currency of the world. If and when that’s the headline it represents a severely extended market.
Overall, we saw a bounce attempt on Friday due to the 161 day trading window back to the May peak. We were looking for it but the rally faded in the middle of the session and what was a promising start became a struggle. Biotech and banking gave up early gains.
What can we expect moving forward? One of the major wild cards is Shanghai. As we know it’s a non-participant in the Santa rally. Up to now they have the Grinch spirit. But Friday was a day where it put in an excellent reversal candle on some good square of 9 and ratio readings not only off the February high but the 2010 high as well. These peaks are not the 2009 high but of a seconday nature so any rally from here would be anticipated to be a multi-week bear market variety. This is how we reconcile the Chinese Premier’s comments of a week ago. We already know to be concerned about their opinion of having inflation under control. However, that has nothing to do with intermediate level swings in the market. In the bigger picture, this is a classic bear market. However, the good readings in China are a double edge sword. In early action on Sunday night the SSE gave back a portion of Friday’s gains. The higher probability is on a turn window with readings is we should see a change in direction, especially when it comes from the bottom of a pitchfork line. However, in the non-linear world of financial markets conditions hardly conform to expectation. If really good readings are violated, they could mean something much larger is developing and it takes a really strong underlying current to overcome good readings. I’m looking at 1 of 2 conditions. Either China really turns itself around here or the pattern can seriously accelerate lower from here. The higher probability doesn’t always win. But I’d handicap the percentages as 3-1 in favor of a change of direction. But we are going to have to see these approximate levels in the SSE take root.
What this means to us is whatever the outcome is likely to determine whether we see the risk on/off trade. If China turns itself around it will affect the mining/materials heavy Australian market which will in turn impact Copper which have the butterfly effect to the Greenback and ultimately to our equity market. If China withstands this retest of last week’s low, you should know how to get positioned.
Click chart to enlarge
Jeff Greenblatt is the author of Breakthrough Strategies For Predicting Any Market, editor of the Fibonacci Forecaster, director of Lucas Wave International, LLC. and a private trader for the past eight years.
Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.