Market Update: Negative Interest Rates, Gold And US Dollar
Remember that having an outlook and opinion about where the market seems to be going is intellectually stimulating, but NEVER allow an opinion or prediction about the market influence your investment and trade decisions. Your investment/trade decisions must be strictly based on the fundamental/technical rules you have learnt (e.g. long only on clear uptrend). Never ever attempt to ‘Predict’ the market or outsmart it. It almost always leads to disaster.
The market is a dynamic place that changes all the time. This is why we should never stubbornly hold onto an opinion. Once the market proves us otherwise, we need to change our strategy and go with the trend. A good example is Gold. My opinion was that gold is on a long term and medium term downtrend and should stay that way for the next 5-10 years or more. Any rallies should be short term in nature and merely rallies on the larger downtrend.
What is happening now in the Gold market may prove my thesis wrong and I may look to go long on Gold if the new trend is confirmed. Since Japan lowered their interest rates to NEGATIVE and The US Fed is now contemplating the possibility of negative interest rates as well (are they mad?!!!), Gold has broken its downtrend resistance, broken above its 200 Daily Moving Average (DMA) and looks like it has reversed into a new uptrend.
If you look at the Gold ETF below (GLD), you can see the price is above the 200DMA (200DMA sloping up) red line and 50MA blue line about to cross above the 150MA green line.
So, would I enter now? Not yet! The price has gone up too fast and furious and it is too far away from the moving averages already. So, the prudent thing to do is to see if the price will pull back, find support at the 50, 150 or 200DMA and buy if it continues the uptrend. So, this is a great lesson on how I can change course very very fast, the moment the market changes and new factor are on play.
The USD Pulls Back
Talk of the US Fed cutting rates to negative (I don’t think they will lah, just talk only freak people out already…. my Singlish acting up again ) instead of raising rates as earlier anticipated, has led to a pullback in the USD. As far as USD/SGD is concerned, the medium term trend is still up (50DMA above 150DMA) and the price is finding support at the 200DMA as you can see from the chart below. Since the price bounces off the 200DMA and continues the uptrend, it would be a nice strategy to buy more US$ as it makes a dip on the uptrend.
Markets have become more bearish. The S&P 500 broke below its trending support and is firmly on a downtrend. If you look at the S&P 500 chart below, you can see a bullish divergence and Williams %R below -80 , indicating a potential relief rally in the next few days. So, short term, S&P 500 should rally but medium term, it still looks like its going down. Any long positions would be very short term in nature…. with a preference towards more short positions when the setup opportunity arises.
Asian market are not faring any better. Japan plunged 5% after announcing the insane negative interest rate policy. Singapore STI fell the least last few days… why? because drop too badly last few months until need to take a breather (see, Singlish acting up again)… before maybe dropping some more (:-)).
Once again, as I mentioned during the seminar, stocks look real cheap right now. So, start doing your research and get ready your shopping list and only start thinking of going long only when the markets can confirm an uptrend. Meanwhile, best to steer clear of too many long positions.
Note: This post was first published to our Wealth Academy Graduates on 14th February. If you have no clues to what I had explained, I would suggest you to attend my free 3 hour financial and investment workshop today.
Chart sources are from Thinkorswim platform, by TD Ameritrade.