10/6 Weekly Market Recap

Posted by jon on

Spy of the week

This week the market experienced a range-bound price activity. Being in a downtrend channel, we started this week with a bearish bias, but as we went progressed into time, the SPY formed a significant higher low:

This higher low expresses a buy pressure for the short term. Obviously, on the other hand, there’s the sell pressure that manifests around the top part of the down trending channel.

For now, it looks like a 50-50 chance of the market going either way. Looking to strengthen the argument, the 5 day MTF-MA (The stair-step moving average) looks indecisive by frequently alternating from red (Down) to green (Up), and staying relatively flat.

This kind of activity eventually tends to yield a decisive move, we just don’t know yet what will be the direction with a high percentage of confidence. We will certainly pay a closer look the next session or two until things get more clear.

On a side note, we have seen a similar pattern last week on the USO (Oil and Gas ETF).

This time, the prices consolidated all along the upper price channel, on a much tighter price range waiting for the price to break upward. Well, yesterday it happened. As we hinted, a fast, upward move was due:

This move will typically fade to the resistance slope (Now turned to a support level) and  then continue higher.

If the slope will fail to hold the price above the channel, we will see a sharp move back to back the channel, proceeding with the downward move.

Now back to the SPY on the daily time frame, this chart does not look better. Still, big candles of both colors, with no clear direction. But this scenario reminds us of areas that behaved just like that in the past, and it seems like someone is trying to “shake” the small investors, just so that they can get into the market through cheaper prices:

Prices getting close to Laguerre filter also give us a bullish argument, but again, the price action of the next session will probably tell us where we are going for the rest of the week.

Dollar keeps losing ground

The dollar index ($DXY), which centralizes and concludes the overall movement of the dollar VS other currencies, had been falling for the second consecutive week.

The last few sessions we saw the Darvas Box giving us Short trades only, as all the Moving Averages were pointing lower:

On the daily time frame, things look bearish too. Laguerre filter tells us we are about to turn into a downtrend, while breaking the important 81.50 support level:
On a smaller resolution, the AUDUSD component still suffers from the consequences of breaking the extremely important support level of 1.000.

As another multi-year support level is being tested (0.9600) we have to agree that this pair will probably take a lot of time to “heal”  that damage to price, before it can join join his friends to the uptrend:


Silver and Gold, Friends no more?

Silver and Gold are good old friends, as they are both considered precious metals, they have a strongly correlated price action. Lately though, silver prices have been drifting lower, leaving behind gold prices: 

Normally, each of the metals should have its own price course, reflecting buying and selling pressure derived from the real, physical metal demand. When the prices move together though, this is a sign of a herd market, price moves that are determined not by the actual demand and offer, but by anxiety and fear. In our case, a rush to gold and silver, and a correlated price move, reflected the intention of buying these metals not for their physical properties, but for their psychological one – A safe place where to put your money when the economy is in danger.

Now that we are witnessing the first sign of decoupling, that little piece of price action could be a great sign to the economy. Investors are no longer buying gold and silver because of the fear of a weak economy, but because they really need it to hedge their positions, to produce smartphones, build computers etc.

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