Overwhelming concern regarding the spread of the deadly outbreak of the coronavirus in China has morphed into a legitimate global concern about the repercussions that go far beyond the health of individuals. Although that obviously is the primary concern, many analysts believe that this deadly outbreak could grow larger and affect not only communities but also economies worldwide. The net result of this hypothesis is causing tremendous selling pressure across the board in global equities.
As reported by MarketWatch, “Over the weekend the coronavirus illness that had apparently originated in China has rapidly spread, killing over 80 of its citizens, with nearly 8500 cases not reported in China. Several Chinese cities are under quarantine.”
More alarming is the fact that several cases have been recently reported in other parts of the world including the United States. The medical community now believes that the illness is more easily contractable than first thought. The current concern is that this outbreak could become a pandemic. If the disease spreads as quickly as some believe possible the increasing spread of the virus would most certainly affect the world’s economic growth.
This outbreak could not have occurred at a more sensitive time in that this week is China’s most important holiday, Chinese lunar new year.
As of 3:50 PM EST gold futures are substantially higher currently trading at $1587.50 which is a net gain of $9.30 (+0.595). Today’s gains are following in the footsteps of higher pricing which was prevalent last week.
On a technical basis the key level that gold prices surged above was $1565, which was a resistance area based upon last year’s high. Once this critical price point was breached a combination of short covering and ‘buying the breakout’ ensued thus taking gold pricing substantially higher to a high today of $1580.40.
As you know we have been speaking about a model that maintains that this current rally is simply a counter wave B in an A, B, C correction. The price action last week made it overwhelmingly clear that it is prudent to a reevaluate our current projections and models based upon some deep and serious fundamental events that have recently surfaced. As such while I believe that we are still in a corrective period, it is likely that this this current corrective trend could unfold as a ‘zigzag’ A, B, C simply labeled as an “irregular” zigzag pattern. The distinction between this and a standard zigzag pattern is that in the irregular pattern the B wave trades above the high of the A wave.
It is quite possible that if the fundamental events continue to become more critical we could see this type of zigzag correction emerge. With that in mind we now have a revised upside target of $1612, just shy of this year’s high. It is for that reason that today we recommended the initiation of long positions in the April contract of gold futures with an upside target of $1612, long positions should be placed as a good till canceled limit order. We also suggested that the stop as well as the upside limit order be coupled together as an (OCO) one cancers the other) good till canceled order.
Wishing you as always, good trading,