Not Yet Time For Champagne Just Yet But Break Out Some Sparkling Water

January 29, 2016 - 5:49pm

 by Gary Wagner

The Bank Of Japan’s sudden move into negative interest-rate territory seems to have taken the entire world financial realm by surprise. (We also applaud how they were able to keep it under wraps right up to the announcement.)

It certainly proved incredibly salutary for equities markets around the globe.

Shanghai, in particular, found the upward energy it had been missing for what seems like weeks now, barely beating out the Nikkei on the day. Shanghai was up 3.00%, while Tokyo was up 2.80%.

In mid afternoon, U.S. stock indexes all were up – the Dow and S&P 500 by 1.90% while NASDAQ was just a bit behind them.

U.S. equities were helped by the continuing strength in crude prices, which, thankfully are beginning to stabilize. Perhaps crude is not heading to really solid ground just yet, (meaning $50+ per barrel), but the fact that it no longer is in free fall is significant.

The spread between Brent North Sea oil and West Texas Intermediate has widened again as the twins move back up in price. Nevertheless, many of the factors that have affected oil for the last 18 months have not evaporated and should not be ignored when considering black gold’s near and mid-term future. We have enumerated those many times in the last few weeks.

Speaking of gold… the yellow precious metal is finishing up its strongest month in a year. And although there is some safe-haven demand, our feeling, as we have said throughout this week, (and month), is that it appears there is a real recalibration and attendant renewed appreciation of gold as a good investment.

The shorthand for that thought is that gold has been oversold for so long that it should go up to the mid 1140s to 1150s. After that… well, fundamentals are always changing. Stay tuned and watch the technical analysis closely.

The U.S. dollar was up against the major trading currencies, understandably gaining almost 2.00% on the yen. The buck was up almost 1.00% again the euro. Ditto for the Swiss franc. The British pound fared a little better but was still pushed down by the greenback by about 0.80%.

Interestingly, we have been looking at a falling VIX (volatility index) since it peaked on January 20th. It is now at 20.55, a dramatic decline. That has taken us out of the so-called red zone that warns of an imminent recession.

What should we be feeling as the last week of the first month comes to a close?

We may be cup-half-full folks fundamentally, but we think after what appears to have been a disaster in the making, there is room for a reasonable amount of optimism.

Nevertheless, don’t pop the champagne cork just yet.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action

On Tuesday we sent out a "Trade Alert" to go long gold – this following the same recommendation during our broadcast on Monday. On Wednesday we sent out a "Trade Alert" to first, raise stop, and second, to add to our long gold position.

Maintain all long gold @ 1114 (Avg ) & add on @ 1120 (current 1116)

Maintain stops just below 1107

Gold Market Forecast

The only real caveat to the move this week was the fact that gold on an intraday basis traded above resistance but failed to close at the intra week high.

How gold prices react at the beginning of next week will be critical. The key component we will be looking at is if gold prices can effectively trade and close up off current resistance at around 1121 per ounce.

Trending Markets: Proper Action

We are issuing a conditional trade alert in the Standard & Poor's 500 (E-mini contract).

All criteria have now been met to initiate a long position in the Standard & Poor's 500 with the following condition:  

On Monday if the market opens on a positive note and begins to trade higher you can initiate a long position in The Standard & Poor's 500 E-mini contract.

Stops should be placed below 1900.

 

Trending Markets Forecast

Since the beginning of 2016 we have seen U.S equities under pressure, moving from near record high prices at the end of last year, to match the lows seen during the August 2015 meltdown.  

Both corrections were predicated by concern as to whether or not the Chinese economy was slowing down, and how much it is slowing down. However, this most recent correction had the additional component of crude oil moving to prices not seen since 2002 when on an intra week basis it actually traded as low as $26 per barrel.

This week, however, we saw crude oil prices actually find a bottom and at least for the time being bounce off those recent lows to close above $33 per barrel.

That brings us to today's market scenario in which we witnessed a tremendous relief rally in the Dow Jones Industrial Average as well as the Standard and Poor's 500. These moves have triggered a conditional trade alert. (See Proper Action.)