Silver up 36 cents. Gold up $3.10. Treasuries up 16/32. Crude Oil up $1.42. The dollar index also finished UP .3 at 85.3. What a week! Bonds, Precious Metals, AND the dollar all going up. Smells fishy. The only thing that was down were the equity markets-but less than one percent on the week. S&P finished the week down 9.5 @ 1297.
Precious Metals and bonds increasing in value is consistent with an economic contraction. But the dollar strengthening is NOT and neither is Crude Oil. Crude's move could have more to do with short-term effects(continuing problems with Alaskan Crude+Hurricane season.) Also, although Crude OIl gained on the week, Gasoline continued to sell off which usually is a leading indicator for Crude. As far as the dollar's stregth, I chalk it up to weak economic numbers out of Germany this week, as well as continued implicit support of the dollar as a pillar of the world economy. Regardless, it was a week of weak economic news-and the markets reflected that fairly well.
Prices are at a crossroads in treasuries and in the precious metals. In Precious Metals, we have silver leading gold and the XAU close to new three-month highs, but momentum is still a little overbought, and the XAU and silver both were turned back from previous resistance this week(12.65 in silver and 151 in the XAU.) I would still be surprised by an immediate upturn in silver and gold and would feel much more comfortable recommending a buy if prices experienced some distribution.
In treasuries, we moved through the 200 day moving average this week almost as if it weren't there, and in general-from a technical point of view- everything seems a little bit too easy. The correction at the beginning of this month wasn't very deep, and this week's price action traded up in almost a straight line. There is a serious(at least in my mind) set of resistance points at 110-12 and the December contract(which replaces the September contract) is already trading above that point. Also the yield is now sitting at 4.80 percent which was an area of significant resistance on the way UP. So-I'm betting on a reversal in bonds as well-purely from a technical point of view.
Economically speaking, it makes sense that bonds and precious metals are going up because the economy is clearly in peril. But if the economy was already in decline then I think we would see more of a break-down in stocks. That doesn't look likely.
My predicitions for next week are down on precious metals(low confidence) down on bonds(medium confidence) and up in equities(medium confidence,) and up in the dollar(high confidence.) The energy market depends on hurricane activity, but my prediction for that would be neutral.
It is one of those weeks where Monday will probably shape the direction of trading for the rest of the week. Watch for a break-up or break-down in Silver on Monday morning. And watch for treasury close on Monday.
Have a good weekend and hope you see a silver lining,
Matt
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