Gold and Silver Poised to Jump?

The S&P500 ended last week essentially unchanged…..actually rising but by an ever so tiny 0.1%. Volume was light, which is unsurprising in a market that showed no net direction during this period. And volatility also didn’t move much, but more so because it was already hugging multi-year lows; investors remain super complacent.

In US macro news, the week got off to a poor start. Personal income missed expectations; personal spending only met expectations. The Case-Shiller home price index (20 city, not seasonally adjusted) missed expectations—while home prices rose, they rose far less than expected. The Chicago PMI result was a disaster, coming in far below the consensus estimate. Consumer confidence also missed. Construction spending missed, and so did ISM services. On the positive side of the ledger, ISM manufacturing beat expectations. Initial jobless claims were better than expected. And factory orders also exceeded expectations. The big number of the week, payrolls, was a mixed bag. On the one hand, the headline jobs number was stronger than expected, but on the other hand, headline unemployment ticked higher and average hourly earnings missed badly.

Given that the S&P500 barely budged last week, the technical picture also didn’t change much—the S&P remains extremely stretched to the upside and looks very vulnerable to at least some sort of sell-off….at the very least, a retreat back down to the 50 day moving average would be a simple target. Instead, it continues to hug the upper Bollinger Band, suggesting it’s somewhat above fair value.

Technical analysis, meanwhile, is painting a bullish picture for precious metals. Both gold and silver have traced out a long-term (weekly) inverted head-and-shoulders formation on their respective charts. One key part in this formation was the failure of both gold and silver to make a new low in late 2016; the prior major low at the end of 2015 was deeper. The second and remaining part of this formation involves the neckline and whether or not it will be broken to the upside. For gold, this is around $1,400 which was last seen in mid-2016. If gold rises, and stays, above this level, then there could be a lot more upside ahead for it. So precious metals will be interesting to watch over the upcoming weeks and months.

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