50 Day Moving Average
Already, the Chinese have stopped accumulating dollars - preferring safer currencies, infrastructure, hard assets and commodities and of course gold. Even a small amount of Chinese selling could lead to substantial dollar weakness and much higher bond yields plummeting the U.S. into another recession.
Once again confusion is rife overnight, following yesterday's main European event, Spain's first "mixed" regional election, which saw Rajoy's PP party in his home state of Galicia eeking a majority by a few seats, offset by wins for nationalist parties in the Basque Country. The immediate read here is that the Galician win is an endorsement of Rajoy's "austerity poilicies" and thus EUR positive (which have yet to be actually implemented as Spanish spending continues to rise, as tax revenues continue to drop), yet it makes the likelihood that Spain requests a bailout before the Spanish regional election on November 25, which is about secession, virtually nil, and thus SPGB negative. Furthermore as Bank of America points out "some euro-area govts may remain reluctant to support Spain’s request as long as yields continue to be low, banks haven’t been recapitalized; probably reinforced by Catalonia elections" but that is a reality tale for another day - the "market" can only handle so much.
Technical indicators such as MACD, RSI and STO show that silver is slightly overbought short term.
However, silver can remain overbought in the short term as was seen in silver’s rally in 2011 when silver nearly doubled by surging from below $27/oz to nearly $50/oz in just 3 months - from January 27th 2011 to April 28th 2011.
We have seen consecutive weeks of bullish strength in the gold and silver markets. Gold has completed what is known as a ‘Golden Cross’ and silver is poised to complete one in the coming days. A ‘Golden Cross’ occurs when not only the current price, but also shorter-term moving averages such as the 50 day moving average “cross” or rise above the longer term 200 day moving average. Gold’s 50 day moving average (simple) has risen to $1,651/oz and is now comfortable above the 200 day moving average (simple) at $1,645/oz and accelerating higher. Silver’s 50 day moving average (simple) has risen to $29.86/oz and will soon challenge the 200 day moving average (simple) at $30.47/oz.
Follow the indicators or BTFD?
Volatility is back. The S&P moved more than 1% on 4 of the 5 days, had the biggest down day of the year, and even the least volatile day was a 0.7% move.
Today FX markets seem to be
driven by technical analysis and news flow. Our approach has been to analyze what investors have
been doing, rather than what they say they are doing. To accomplish this, we compare the Euro currency
against data taken from the Commitments of Traders (COT) reports. The first chart shows the Euro (EC) as
the black line compared against the net speculative long open interest
(EC_NCPLA-EC_NCPSA) in the blue line.