Hi everyone,

Hope trading has been going well for you all over the last month or so. Haven’t had a chance to do a new post for a while as I’ve been very busy travelling for most of the last 6 weeks, mostly work but some holiday time thrown in aswell so not all bad! So while I’ve been trekking the globe (was in the States, Australia, Northern Europe and Russia) my blog posts had to take a back seat for a while. I did manage to trade a bit however and thought I’d use today’s post as a bit of a catch-up on some of the big moves that have taken place over the last 6 weeks.

The DOW Falters At 10,000

So lets start with the DOW, on the 19th October the major index closed above the 10,000 markfor the first time in over a year. In the 2 weeks since then the DOW has struggled to continue higher and over the last week we have seen a significant sell-off in equities resulting in a 4% fall in the DOW bringing it back to the 9700 level. So where to from here? Is this just another one of the minor blips we have seen along the way since the rally began back in March or are we at the start of a more serious pullback? After a 56% rise in the DOW since it’s March lows we should not be too surprised to see some sort of pullback due to profit taking at this significant 10K mark. From a fundamental perspective it’s hard to justify such a rapid recovery in equity markets in a little over 6 months, the unemployment rate in the US continues to tick upwards (hitting 9.8% in September), house prices continue to fall (although a slight rise in new-home sales offers comfort) and US consumer spending remains sluggish at best. That said figures released last week showed that the US economy did grow in Q3, officially bringing an end to one of the worst recessions for many years.

DOW Chart - Is Pullback Temporary? (Click to Enlarge)

So am I hedging my bets a bit here? Yeah pretty much, I’m struggling to call the next more for the DOW. Short term the chart is bearish with a falling 5 day moving average. However longer term we are still in a clear uptrend and the current pullback technically just represents another higher low, offering hope that another move higher may not be too far off. Things are still very nervous out there and my gut tells me a more significant pullback is not far off. But short-term I like the risk-reward offered by a small long position on the DOW. The last 3 trading sessions have produced some nice support at the 9630 level, providing the opportunity to go long at current levels with a tight stop just below, I’d suggest just below 9600. If the market moves higher from here it shouldn’t take too much to push us back above the 10,000 mark again.

Gold Hits Record Highs

Gold has also been hitting some significant levels recently and getting a lot of market coverage along the way. October was the month when Gold made its first decisive move above $1000 an ounce for the first time since March 2008. And the big difference with last months move is that since the breakout Gold has held firmly above the $1000 level. And today Gold move up another 2% to hit a new all time high of $1087 an ounce on news that the IMF had successfully sold 200 tonnes of gold to India for $6.7 billion. The IMF approved the sale of 400 tonnes of gold back in September, an amount that many commentators expected it to take several years to dispose of on the open market. So to have already reached an agreement for half the total so quickly, and with a single country which wasn’t even China came as a shock to the market. It confirms there is still a massive appetite out there for the precious metal among the world’s wealthiest economies.

Gold Hits New All Time Highs (Click to Enlarge)

From a technical perspective I have included a very long term weekly chart going back almost 5 years to help illustrate where gold prices have come from and the significance of this breakout above the $1000 per once mark. While I’m not a big fan of them personally I have also drawn in the often referred to “inverted head and shoulders” technical pattern on the weekly gold chart in blue. Many chartists see such breakouts as very significant and offer the potential for further moves higher. Certainly the trend is up but remember Gold is a volatile commodityand not the easist to trade, often requiring wide stops to be put in place….you’ve be warned!

Dollar Recovery Likely To Be Temporary

Finally for todays post a quick look at what the Dollar has been up to against the Euro. Again we can see a clear trend of a weakening Dollarsince the start of the year. Again no surprises here as to why, we have the US Fed keeping interest rates at all time lows, combined with a policy of printing money like it is confetti to buy up Treasury debt and new bond issues, billions spent on stimulus packages, cash for clunkers, bank bailouts…well you get the picture. On the other side of the Atlantic the European Commision annouced today that it sees the EU returning to growth next year while ECB President Mr Trichet continues to favour a conservative (well relative to most other developed economies) fiscal policy, one where interest rate rises appear to be only a matter of months away. So while the USD has found some support over the last week and recovered somewhat I think this will be a short-term move before the Dollar resumes it’s path and continues to fall further against the Euro and other major currencies.

Dollar Chart - Trend Suggest Further to Go? (Click to Enlarge)

From a technical perspective the chart supports this argument also, with a clear uptrend showing a series of higher highs and higher lows since last March. And unlike Gold, currencies tend not to move so wildly and can therefore offer easier trading opportunities.  I suggest keeping an eye on the EUR/USD from current levels and if further Euro strenght looks like kicking in, go long with a target of a move back above $1.50 in the not too distant future.

Until next time (promise it won’t be so long!),
Happy Trading!
SpreadTrader.ie :- )