Wednesday, January 05, 2011

Technical Picture - Favorable Data Trumps Strong Dollar

Overnight trade had the bears firmly in control, but favorable ADP private sector jobs inspired the bulls to push prices higher in pre-market and positive ISM numbers at 10:00 emboldened the bulls even further. We have a possible double top on the SPY. I don't want to jump the gun, but the markets are extremely overbought and will need to correct shortly. I wouldn't be surprised to see a sell the news type scenario on Friday's job data.

Strong jobs means higher interest rates and lower bond prices. The $USD rallies on higher interest rates, hence today we had a much stronger dollar. As you can see from the $USD chart below, the $USD is flagging and wants higher. Eventually, the higher dollar will weigh on commodities, several of which have been ripping lately.

Higher interest rates are bad for gold. Why hoard gold, when you can get higher interest on your savings.

Friday's jobs data should be interesting. I doubt that it will be as bullish as the ADP report, hence we could get an opportunity for a short-term bounce in gold. The AEM chart below is very oversold and could be a good long entry especially on a gap down open.

PCLN broke out of a two month base today. On a measured move basis, target $452-$453.00


chin said...

Hi Jamie,

Can you please explain how you came up with a 452 target on the PCLN ?
With a Fib, I get 161.8% as 481. Wanted to understand where I am going wrong..


Jamie said...

Hi Chin,

For measured moves, as opposed to Fibonacci, you take the depth of the pattern and extend from the BO point. So I measured the depth at its widest point (diagonal blue lines) and it's extension gives $453.00.

chin said...

excellent. Thanks
When does one do a measured move as opposed to a Fib ext ?

Jamie said...

Use measured moves for chart patterns.