The World Financial Markets influence one another to a certain extent. Today, We make an effort to compare the Oil, Gold, US Dollar Index, and the Dow (DJIA) Stock Market Index in the hope of developing some strategic foresight on the future direction of these markets as they relate to each other.
Charts Courtesy of StockCharts.Com
The key to our analysis is Oil. If Oil Price goes down further, this would ease inflationary pressures even more, and thus, there would hopefully, be a little more left over for cash strapped consumers to spend, to sustain their cost of living.On the other hand, if Oil Price starts to climb back to US$100, then, both the consumers and businesses would be badly hit once more, especially so today, when unemployment is rising rapidly.
A High Oil Price does not augur well for the US and World Economy.
Oil ($WTIC) Price has fallen by US$90.30 or 61% from the historical peak of US$147.90 per barrel, to US$57.60 as at 14 November 2008.
If you take a look at the $WTIC Oil Daily Chart, don't you feel like kicking yourself hard, for not taking advantage of such a well behaved, Strong Downtrend, that just keeps going down, down and down?
There were only two minor rallies, i.e. once in mid August 2008, and another stronger rally in mid to late September 2008. THIS is the type of market we want to trade and make money in. Unfortunately, I have yet to get access to trading Oil CFDs, and I don't like to trade Oil Futures because there is an expiry date.
What is our Market Outlook for Oil ($WTIC)? The Stochastics is showing that Oil is at Gross Oversold Level.
So what? If you look more closely, Oil has been in Gross Oversold Territory on the Slow Stochastics Indicator for more than a month now!!! The Stochastics Indicator is not very useful in a Trending Market, unless you know how to interpret it beyond what is taught in the Technical Analysis books.
Howver, there is an Indicator that is useful, i.e. the MACD (pronounced Mac D), because in this situation, it has been showing a bullish divergence against the Oil Price. Whilst Oil Price is still trending down, the MACD has crossed over and started trending upwards. This is a sign of accumulation by Market Bulls.
It is important to note that we cannot take a Long Trade just because there is a MACD Bullish Divergence. Why? Because the Price is still going down, despite the Divergence, and thus, we need a Trigger Signal to tell us that NOW, is the right time to buy.
To convert this Potential Opportunity into a trade, we need the Oil Price to form some kind of pattern that will give us such a Trigger Signal. The latest Pivot Low is US$55.50, and if this Support Level can hold, while the Oil Price consolidates sideways in a narrow range for a while, or if it forms a W Pattern, then we will eventually have a Trigger Candle.
At present, if we just jump in the trade, we don't know if Price will hold above US$55.50.
It should be noted that any Uptrend is expected to be merely a Medium Term Secondary Wave Correction, in a Long Term Primary Wave Downtrend. So, please be careful with any Long Position you may want to enter.
The Oil Market is already in a Long Term (3 Months to a Year) Downtrend, which is due for a Medium Term (3 Weeks to 3 Months) Uptrend Correction.
If Oil is about to rebound, perhaps we may gather some market intelligence from the Gold Market. Why? Because Oil is THE Cause for High Inflation, and Gold is a Popular Hedge against High Inflation.
However, based on the Daily Chart, the Gold Market seems to be in a Medium Term Sideways Consolidation Price Pattern Formation (SCPF) Mode, amidst a Long Term Primary Downtrend Wave.
Gold tends to have an inverse relationship to US$. When US$ strengthens, Gold tend to weaken, whilst when US$ weakens, Gold strengthens. This is not the case all the time, but sometimes, especially when the "Flight to Safety" story is being propagate
d, then this relationship holds true, for a while.
Charts Courtesy of StockCharts.Com
In this case, the US$ Index seem to be suggesting a higher probability that the US$ is now toppish, and thus due for a Medium Term Secondary Wave Downtrend Correction, although the Primary Wave is in an Uptrend.
Both the MACD and Slow Stochastics are showing Bearish Divergences, with the Slow Stochastics coming down from an Gross Overbought situation.
Thus, US Dollar seems toppish and due for a Medium Term Downtrend Correction Wave, which is fairly consistent with the Oil Medium Term Outlook which is facing increasing probability of a Medium Term Uptrend Correction Wave.
When Oil Price goes up, US Dollar Index tend to go down.
Occasionally, the US$ strengthens before the Dow moves up. This has been due to the sell down by Global Mutual Funds / Hedge Funds on the Global Markets, so that they can adjust their portfolio allocation, and raise the necessary cash. They then remit the cash into US to be invested in the US Stock Market.
Charts Courtesy of StockCharts.Com
The remittance of the cash funds into the US causes a short term demand for US$, which causes US$ to appreciate a week or two before the US stock market moves up, due to the cash inflows.
Charts Courtesy of StockCharts.Com
At present, if we just jump in the trade, we don't know if Price will hold above US$55.50.It should be noted that any Uptrend is expected to be merely a Medium Term Secondary Wave Correction, in a Long Term Primary Wave Downtrend. So, please be careful with any Long Position you may want to enter.
The Oil Market is already in a Long Term (3 Months to a Year) Downtrend, which is due for a Medium Term (3 Weeks to 3 Months) Uptrend Correction.
If Oil is about to rebound, perhaps we may gather some market intelligence from the Gold Market. Why? Because Oil is THE Cause for High Inflation, and Gold is a Popular Hedge against High Inflation.
However, based on the Daily Chart, the Gold Market seems to be in a Medium Term Sideways Consolidation Price Pattern Formation (SCPF) Mode, amidst a Long Term Primary Downtrend Wave.
Gold tends to have an inverse relationship to US$. When US$ strengthens, Gold tend to weaken, whilst when US$ weakens, Gold strengthens. This is not the case all the time, but sometimes, especially when the "Flight to Safety" story is being propagate
d, then this relationship holds true, for a while.Charts Courtesy of StockCharts.Com
In this case, the US$ Index seem to be suggesting a higher probability that the US$ is now toppish, and thus due for a Medium Term Secondary Wave Downtrend Correction, although the Primary Wave is in an Uptrend.
Both the MACD and Slow Stochastics are showing Bearish Divergences, with the Slow Stochastics coming down from an Gross Overbought situation.
Thus, US Dollar seems toppish and due for a Medium Term Downtrend Correction Wave, which is fairly consistent with the Oil Medium Term Outlook which is facing increasing probability of a Medium Term Uptrend Correction Wave.
When Oil Price goes up, US Dollar Index tend to go down.
Occasionally, the US$ strengthens before the Dow moves up. This has been due to the sell down by Global Mutual Funds / Hedge Funds on the Global Markets, so that they can adjust their portfolio allocation, and raise the necessary cash. They then remit the cash into US to be invested in the US Stock Market.
Charts Courtesy of StockCharts.Com
The remittance of the cash funds into the US causes a short term demand for US$, which causes US$ to appreciate a week or two before the US stock market moves up, due to the cash inflows.
However, this does not seem to be the present situation observed.
On the other hand, there are times when there is not much of a correlation, when the strength or weakness in either market is not the major cause or effect on the other.
In reviewing the Dow (DJIA) Daily Chart, we would maintain our Long Term Primary Downtrend Outlook, and a Short Term Sideways Consolidation Price Formation Outlook. The Medium Term Outlook is unclear for this market, and if anything, is starting to yield a slightly bearish feeling, as hopes of a "Climb Back to Health" scenario fades with each passing day, as the pattern gets nearer and nearer to the SMA50 (Red Line), which currently stands at 9758.
CONCLUSION
Oil Market Outlook
Long Term: Primary Downtrend, i.e. Bearish
Medium Term: Higher Probability of a Secondary Uptrend Wave Correction
Gold Market Outlook
Long Term: Primary Downtrend, i.e. Bearish
Medium Term: Sideways Consolidation Price Formation (SCPF)
US Dollar Index
Long Term: Primary Uptrend, i.e. Bullish
Medium Term: Probability of a Secondary Wave Downtrend Correction is increasing.
Dow (DJIA) US Stock Market
Long Term: Primary Downtrend, i.e. Bearish
Medium Term: Unclear with Hopes of a "Climb Back to Health" Uptrend Scenario fading.
Short Term: Sideways Consolidation Price Formation (SCPF)
Lastly, please be reminded on the Liability Exclusion Clause, which is at the top of my blog page, i.e. that the final trading decision is yours, and I will not be responsible or liable for any losses you may incur from whatsoever reason. :)
Best wishes,
Best wishes,
Ooi
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