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Why the S&P 500 and Gold Rallied in the Face of Negative News

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And shockingly, for most retail traders, last week produced a very strong return for US equity indexes as well as risk assets in general.

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This week's price action is going to have a dramatic impact on the price direction of the broader market indexes. One important aspect that I would point out to readers 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 regardless of a trader's or investor's directional bias.

One of the most important charts to monitor over the past few weeks has been the US Dollar Index futures. Typically a stronger dollar has been bearish for equities and risk assets in general. However, on Friday we saw a very strong sell-off in the US Dollar Index futures as shown below.



As can be seen above, the US 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 US 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 had a huge move higher recently supported by strong volume. Based on this action, I believe that we will see the $1,800 / ounce resistance level tested in the near term. Seasonally speaking, this time of the year is bullish for gold and silver and should the strong seasonality correspond with a weak US dollar much higher prices likely await in the precious metals sector.

I was expecting very strong action in both gold and silver when they broke higher after nearly testing their 200-period moving averages. At the time, I said that as long as the breakout from the consolidation zone from the July-August time frame held as support, higher prices were likely, and that is just what we have seen.

Overall, I believe that the quarters ahead should be strong for both gold and silver. Time will tell whether oil futures and the broader equity markets will also move higher. I continue to believe that monitoring the Dollar Index futures closely is an important part of assessing the directional bias to expect in the months ahead.

Take care, and happy trading!

Editor's Note: JW Jones offers more content at OptionsTradingSignals.com.

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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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