Dominic Picarda CFA, CMT, Associate Editor, Investors Chronicle/Financial Times.

DD: 0207 775 6563. Mob: 07850 940279

 

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Wednesday February 22, 2012

Things are getting interesting again in precious metals. I have been looking for gold and silver to try escape upwards out of the ranges in which they have been stuck for most of February so far. They made a convincing start to this process yesterday, at one stage flirting with their highs from the beginning of the month. One swallow does not a summer make, however, and I need to see a bit of follow-through now. Inconveniently, both are pulling back sharply this morning, as the US dollar comes back to life.

If they can hold a decent chunk of their gains from yesterday and rally anew, I will be looking to establish long positions here. There is plenty of upside potential in each case. Meanwhile, I am still an oil-fancier right now, despite crude looking increasingly stretched.

Caution is the watchword at this stage of a rally. At the early and middle stages of a strong move higher, you can often jump aboard pretty much whenever, knowing that the tide will carry you higher soon enough. Later on, however, more discernment is called for. When the indices are high and near overbought, the potential for spills is that much greater. And that's where I believe we are now.

Yesterday's dip took several of the indices to just around the levels where I was seeking to buy. And that remains my bias for today. I would like to get involved on the long side around the end of pullbacks. I continue to be drawn to the Dow in particular.

 

Tuesday February 21, 2012

The stage is set for a potentially significant turn in the US dollar in the coming weeks. The 77-day cycle is due to bottom out around 12 March. This is one of the most important rhythms in the currency markets and has correctly identified some of the most important turning-points of the last year or so, especially the last two major highs. If the dollar is destined to weaken further as we head into next month, this is most likely helpful to the prospects of the present rally in equities and commodities.

I still absolutely love the look of crude oil, despite it being somewhat overstretched. But gold is beginning to look interesting once more as well.

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Greece bailed out anew, world safe again. Except, of course, that it isn't and most sensible people are saying so outright. The situation of Greece is dire and the latest fudge is unlikely to be enough to avert further crises of confidence going forwards. Such inconvenient details don't seem to bother the markets too much for now, though, with the indices extending their run yesterday. And despite a bit of selling this morning, there is no technical reason to believe that the recent uptrend is yet coming to an end.

Admittedly, certain indices are looking very stretched indeed right now. I'm thinking particularly of the DAX and the Nasdaq, both of which are sporting significantly overbought daily momentum readings, and have been for some time. A look back over the last couple of years shows that this situation can be resolved without too much bloodshed, which is what I expect will happen this time round. In the meantime, I look for small buys in the likes of the Dow and FTSE.

 

Monday February 20, 2012

BRENT CRUDE

 

Friday February 17, 2012

Brent continues to steal the show among the commodities covered here. Its uptrend is strong and confident, whereas the precious metals are stagnating and copper is sliding. The next couple of weeks are a seasonally favourable time for crude and the 77-day cycle - see below - remains in its favour heading into March, perhaps even into later March. My only reservation is that it is looking somewhat overbought on a daily timeframe. However, I am still seeking to buy this one on intraday pullbacks.

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Investors are still hopeful that Greece will once again be rescued from the brink.

Eventually, it will go over the edge, but not yet, in my estimation. The announcement of the latest deal could provide just the kicker to drive the markets through the top of the range in which they have been trapped over the last few days.

The broad, sideways action has had some helpful effects as far as the bullish case is concerned. It has got rid of the overbought momentum readings for most of the indices, while sentiment is also becoming less exuberant. The latest AAII data shows quite a big retreat in bullishness.

As such, I am on the lookout for further long positions if the indices come off gently today. The S&P, Dow, and DAX all still hold appeal for me.

Wednesday February 15, 2012

I am keeping a close eye on the dollar right now. It has broken above some key levels on its intraday chart and this could mean that it is re-entering its late 2011 uptrend.  My gut-feeling is that this is most likely a false move and that there is still more downside to come. But I am certainly not shorting the greenback for now. I am, however, continuing to seek out long positions in commodities. Brent's rally is coming along nicely and I wouldn't mind participating in this, given a decent entry.

I am away tomorrow and the next edition of Outlook will therefore appear on Friday 17 February.

I clung on to my DAX position yesterday, perhaps to avoid being alone on Valentine's Day. While I came within an inch of getting stopped out, the trade survived and the index has since rallied more than 100 points. I am giving this rally in the indices the benefit of the doubt for now. The action of the last few sessions may have been all the correction we're going to see for now.

Besides the DAX, I still like the look of the S&P. The FTSE is the least appealing of the lot right now.

Tuesday February 14, 2012

Bloody typical. You do everything the miserable cow wants and then she throws a strop right on Valentines Day. No, not the missus: I'm talking about Moody's and the UK. Despite the government's attempt to do all the right things towards cutting the national debt, it got repaid with the equivalent of a withering stare from the aptly-named ratings agency last night. Half a dozen European nations also received the angry treatment too.

Of course, there's no reason why the UK must ever default on its debts, having the ability to print pounds as it sees fit. While this is just one more reason why gold is an excellent longer-term bet, it didn't help much yesterday. Twice I went long of the yellow metal during Monday's session and twice I got stopped out. Marvellous. Crude is looking the best of the bunch today, but I'd still buy the precious metals if they spurted convincingly higher.

I was kind of hoping that the latest 'resolution' of the Greek train-wreck would provide a springboard for a really decent push higher. However, the benefits have been fairly muted and short-lived, at least so far. Part of the problem was my decision to buy into the DAX yesterday, rather than into the US indices. I remain long and losing for now, but am going to stick with it for the time being.

There was a marked lack of participation in proceedings yesterday. The FTSE's volume chart - below - makes the point well. The number of shares changing hands was the lowest in 2012 so far. Still, it is easier for markets to rise on low volumes than to fall. I remain a bull on the indices as a whole for now, with the S&P and DAX my preferred plays.

Monday February 13, 2012

Austerity alone is not going to save the Eurozone in its current shape, if anything indeed can save it. Ultimately, the ECB is going to have to resort to the same money-printing tactics of its peers elsewhere in order to keep the single-currency show on the road. Whereas this should cause the Euro to depreciate against the US dollar, I nonetheless expect the eventual impact to be favourable for gold. The public's faith in paper money is going to be sorely tested over the coming years, and precious metals are going to be a beneficiary of this, in my view.


I am on the lookout today for buying opportunities in the commodity complex, with gold and Brent looking especially likely candidates.

Greece is like a miserable 40-year old dude. Why wait? Face the inevitable and get divorced now." - Goldman Sachs Elevator Gossip.

It seems that Greece is far from ready to resign itself to the inevitable for now, however. The markets have reacted positively overnight to that country's latest postponement of its fate. As such, I am sticking to my Friday call for an ongoing rally in the indices. The dip that we got at the end of last week has eased back some of the overboughtness that had built up, creating scope for renewed gains.

True, we are now in the ideal timeframe for something more of a correction in the markets. However, one should never trade on timing factors alone: it is the price action that matters above all else. And so long as the indices remain so clearly within an uptrend, my only interest is in buying.

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