Last Week S&P 500 and Gold Rallied; News was Negative

ilene's picture

Last Week S&P 500 and Gold Rallied; News was Negative


The amount of negative news that we have seen recently has been mind-blowing. Europe is going into recession, Greece and several other countries are on the verge of bankruptcy, the Middle East is a powder-keg, and the U.S. is facing a fiscal cliff. Shockingly for most retail traders, the past week has produced a very strong return for U.S. equity indexes as well as risk assets in general.

Retail investors often times lose money because they focus on the financial media and all of the negative news that is out there. However, there is never an absence of negative news or potentially poor economic possibilities. Markets certainly can decline, but news is overrated as a driver. The markets are cyclical in nature and never move in a straight line.

Based on what I was reading from most of the financial blogosphere recently, you would think that the entire world was about to end. A few blogs were calling for an all out collapse late last week or a possible crash this past Monday, November 19. As is typically the case, the market prognosticators were wrong with the calls for a crash in financial markets.

At TradersVideoPlaybook, we were expecting higher prices. At our service, we lay out regular videos covering a variety of underlying assets from the S&P 500 Index and oil futures, to gold and treasury futures. The focus is purely on analysis of various underlying assets across multiple time frames. We cover intraday time frames as well as daily and weekly swing time frames throughout the week with videos and written updates.

To put into perspective what we were seeing in the marketplace on Monday November 19, the following chart was sent out to our members during intraday trading that day.


ES Mini - emini SPX Trading Chart


The target we were expecting was at the top of the recent channel. As shown directly on the chart above was my comment that if the 1,410 level on the S&P 500 Index could be taken out to the upside, the bulls would have an opportunity to move prices higher into the end of the year.

The daily chart of the S&P 500 Index after the close on Friday November 23:


SP500 Index Trading


The S&P 500 Index moved right into the expected target price range and closed literally at the very top end of the range shown above. If prices move considerably higher, the bulls will have broken the descending channel and higher prices are likely.

Next week’s price action is going to have a dramatic impact on the price direction of the broader market indexes. One important aspect is that the large move higher shown above came on exceptionally light volume due to the holiday week. In light of that, a strong reversal cannot be ruled out. Caution is warranted.

One of the most important charts to monitor over the past few weeks has been the U.S. Dollar Index futures. Typically a stronger Dollar has been bearish for equities and risk assets in general. On Friday we saw a very strong selloff in the U.S. Dollar Index futures as shown below.


Dollar Index Trading


As can be seen above, the U.S. Dollar Index futures closed on Friday right at a key support level having given back much of the recent gains. If the Dollar continues to move lower it should put a floor under stock indexes and push risk assets higher overall.

Two major moves higher occurred in light of this weakening Dollar on Friday in both gold and silver futures. The precious metals had a very strong move higher after the U.S. Presidential election and have been consolidating now for a few weeks. Prices in both gold and silver had strong moves higher on Friday which were accompanied by very strong volume. The daily chart of gold futures is shown below.


Gold Futures Trading


Gold futures had a huge move higher supported by strong volume. I believe that we will see the $1,800 / ounce resistance level tested in the near term. This time of the year is bullish for gold and silver and should the strong seasonality correspond with a weak U.S. Dollar, higher prices are likely in the precious metals sector.

I was expecting strong action in both gold and silver when they broke higher after nearly testing their 200 day moving averages. I think the quarters ahead should be strong for both metals. Time will tell whether oil futures and the broader equity markets will also move higher. Monitoring the Dollar Index futures closely is an important part of assessing the market's directional bias.



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For more reasons to be bullish, read this week’s Market Shadows Newsletter: From Fed, With Love. In the newsletterLee Adler discusses how the Fed tanked the markets in 2008. Lee Adler and Richard Chappell discuss reasons for a bullish bias. Richard and Dr. Paul Price share the details on what they are buying and why.

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This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

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NEOSERF's picture

One important aspect is that the large move higher shown above came on exceptionally light volume due to the holiday week. In light of that, a strong reversal cannot be ruled out. Caution is warranted.

So you put out weekly prognostications, hit on one last week, write up a quick blog entry and are now suggesting that gold hits $1800 in the "near term".  Since you haven't defined "near", I will do it for you...let's call it this time next week...looking forward to your next blog entry here entitled "I told ya gold would hit $1800..."

clam's picture

ZH...How can this rubbish benefit anyone ... making suckers bigger suckers?????   Why do you print this tripe??????

LawsofPhysics's picture

If only technical analysis mattered anymore.  These posts are becoming very "rear-view" predictions.

orangegeek's picture
Last Week S&P 500 and Gold Rallied; News was Negative


Elliott wave speaks to this phenomena.  It's referred to the social mood of the markets.  It's also referred to the algo's doing what it takes to keep these markets up.


We are in the age "big swing markets" - marginal net gain over the long term and large swings over weeks and months. (ie:  SP500 in 1997 = SP500 in Oct 2011 )


It's a brand new world out there.

tango's picture

Which is why most investors end up flat. Almost all those who invest in company 401s have few options and worse, they monitor it once a year missing all the ups and downs that are now the hallmark of this market. I am convinced that unless we have a REAL problem - no deal, Europe explodes, war, China goes down - this market will stay up. It has become inured to an always potential doomsday environment. Good article.

EnslavethechildrenforBen's picture

The criminals (government) have control of the printing presses and are now increasingly buying real money (Gold) with that counterfeit paper. Gold's actual value is currently 2 or 3 times higher than what Kitco would have you believe.

nugjuice's picture

I'm confused - are you insinuating that Kitco is holding down the price of gold? I would think a company that sells gold would have every motivation to inflate the price, not hold it down. Those Cash 4 Gold thugs are the people I would worry about trying to hold down the price of gold....oh, and the Fed. Those thugs too.

NotApplicable's picture

Dear Ilene,

 Either go troll somewhere else, or DIAFF!


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