Taking A Look At Gold, the US Dollar, & Crude Oil ~ market folly

Thursday, December 17, 2009

Taking A Look At Gold, the US Dollar, & Crude Oil

The guys over at MarketClub just put out three interesting videos covering three hot topics: gold, the US dollar, and crude oil. Let's first start with their coverage of crude oil since it's trading near a crucial level.

Crude Oil

Firstly, Adam checks out the crude oil market and right off the bat he highlights that while crude has been in an overall uptrend since March of this year, the recent decline could be worrisome. He specifically notes the $67 level as crucial seeing how that was the most recent level of major support back in late September. While crude initially traded higher from thos levels, it has since spiraled down and is getting close to testing support. If it takes out $67 to the downside, Adam notes that you should exit the market as support will have broken. You should also note that Adam previously identified a pattern in crude oil where it is sold off every 75 days or so and then was bought right back up again. We're in the midst of one of those downtrend areas right now and buying needs to come in for this pattern to remain in tact. If crude heads lower, it will have breached a support level and nullified this patterned uptrend as well, a definite sign to exit the commodity. Click the chart below to watch the crude oil analysis.


Secondly, you can see their technical analysis on gold here. Adam feels that it's best for you to just stay out of the precious metal for now if you're not already in it because of what he calls "silly season." He's referring to the period from December 15th until the new year where many traders and money managers simply take off for the holidays. As such, volume in markets decreases and it only takes a little bit of money to really whipsaw things around. Not to mention, they are seeing conflicting indicators on their screen as the weekly trend is going down but their daily indicators are pointing up. These divergences combined with the lack of market participants over the holidays means it's best to sit on your hands they say.

US dollar

Lastly, you can see their analysis of the US dollar here. The dollar has been in a definitive downtrend over the past few months and their monthly indicators have been bearish since May of this year. Their weekly signals on the other hand, have turned up as the dollar has been rallying as of late. While some may interpret this as bullish, they note that trading against the primary trend (which is still down) is not advisable. We'd tend to disagree with him on this point as illustrated in the chart below you can see that the dollar has clearly broken out of its downtrend (green line) from the past few months. Not to mention, it is now trading above its 50 day moving average (blue line) and both the RSI and MACD are heading higher.

To his credit, Adam highlights the potential divergence in the MACD as its been slowly building higher since June. This means that the dollar is definitely something to keep an eye on in his view, but until the primary trend reverses, he thinks it's best to sit on the sidelines. We're obviously starting to see a common theme here in staying on the sidelines. It's typically not worth the risk of playing around in the anemic holiday markets. Conflicting signals and lack of true trading participants going into the holidays means you should probably avoid getting whipsawed around. Overall, Adam took at a look at some hotly traded assets but conceded that maybe it's best to just not trade them at all until the new year and we can't argue there.

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