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Fiscal Cliff Worries Send Gold Sharply Lower

November 29, 2012 Comments off

Gold prices plunged this morning, dropping more than $25 on concerns that U.S. lawmakers will not reach an agreement on spending cuts and tax hikes in time to avoid the “fiscal cliff”.

Technically, the market had been having trouble at a Fibonacci retracement level at $1750.00, but there was on indication that a sharp break was in the making. The charts indicate that a test of $1706.00 is likely, but a break through $1704.50 will change the main trend to down on the daily chart, signally a serious shift in investor sentiment.

Some reports are surfacing that the size of the break is being attributed to a technical glitch due to the rollover from the December to the February futures contract, but this hasn’t been substantiated. For several months, gold has traded without a true identity. At times it trades like a reserve currency, but other times it reacts like an investment.

A typical gold market reacts positively to uncertainty, but the current action suggests that investors are more comfortable moving money in the safety of the U.S. Dollar.

The EUR/USD also finished lower. Not only did the uncertainty over the resolution of the U.S. fiscal cliff pressure the market, but the inability of the Greece bailout plan to provide clarity for traders also led to renewed selling.

Technically, the daily chart suggests that a break to 1.2834 may be necessary to relieve the market of overbought conditions. Since the main trend is down, there is still a question as to whether a test of this level will generate any true buying interest.

The short-term, counter-trend rally in the GBP/USD also appears to be over with the Forex pair failing to take out any significant resistance levels. The technical picture suggests a pull-back into 1.5900.

The charts also indicate that the recent rally in the Sterling against the dollar mirrored the rallies in the Euro and the U.S. equity markets. This is a strong indication that short-covering and demand for higher risk assets were the driving forces behind the rally. Some investors were suggesting that the U.K. economy had turned the corner, attributing to some buying interest, but the currently developing break indicates that investors are still bearish the currency.

January crude oil was hit hard on Wednesday in conjunction with the strong dollar and weaker demand for higher risk assets. Although the market remains range-bound between $84.00 and $90.00, today’s break under a pivot price at $87.10 indicates that there is a strong bias to the downside.

Worries that the U.S. fiscal cliff will send the economy into a recession hurt the market today. With supply at high levels, a recession would mean lower demand for oil, putting further pressure on prices.

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Categories: Economy Tags: , ,

Want to Know Who’s Going to Be President? Ask the Stock Market

October 24, 2012 2 comments

A recently-published, landmark research paper shows the link between stock market performance and presidential election winners.
By Elliott Wave International

What’s the biggest influence on the outcome of presidential elections?

Many observers would identify the role of campaign spending by super PACs, a candidate’s debate performance, and, of course, the health of the economy (“stupid”).

Yet if you want an answer backed by a large body of evidence, you’ll find one in the recently-published, landmark research paper by Robert Prechter, Deepak Goel, Wayne Parker and Matthew Lampert, titled “Social Mood, Stock Market Performance and US Presidential Elections.”

A lot of time, data analysis, and copious statistical evidence led them to this straightforward result: “Social mood as reflected by the stock market is a more powerful regulator of re-election outcomes than economic variables such as GDP, inflation and unemployment…”

In other words: If you want a good predictor for the result of an incumbent president’s re-election, look to the stock market.

Large amounts of earlier research have focused on stock performance after a presidential election. But very few scholars have reversed that order, to investigate a possible link between elections and preceding stock market performance. So reverse that order is what the authors did. What’s more, they’re the only ones to study the issue from a socionomic perspective — the premise that waves of social mood simultaneously drive the valuations of stocks and sitting presidents.

The group published their research on January 17, and it’s already getting attention. A Washington Post columnist read the paper and got its practical usefulness, by noting that Obama should benefit from a stock market that’s been mostly higher since 2008, while a Republican challenger “should hope the Dow crashes.”

“Darkest Days” for the Economy: Behind Us, or Just Ahead?

November 18, 2011 Comments off

Economic skies forecast: slowly clearing, heavy rain returning, or cyclone?
November 18, 2011

By Elliott Wave International

Many people still talk about a “recovery,” or at worst only see a possible double-dip recession. But what if the mistake was to think the economy was only in a recession in the first place? It can’t “double-dip” when it never truly recovered:

“The respite following the 2009 stock market low is not a new expansion. It has failed to improve housing sales, barely caused employment to budge, and hasn’t managed — despite the unprecedented manufacture of new Fed money — to get the total supply of credit back above its 2008 high.”

Elliott Wave Theorist, Sept. 2011

Indeed, the Federal Reserve’s quantitative easing measures have failed.

The Fed’s latest policy plan to stimulate the economy has been dubbed “Operation Twist.”

“On September 30, the Fed started operation twist, by which it will sell its holdings of short-term Treasuries and use the proceeds to buy longer-dated T-bonds. The goal is to foster more credit by lowering long-term borrowing costs. But last month [we] noted that low rates compound the money-making problem for banks by reducing margins. ‘Historical verification of this development is obvious from Japan,’ says a recent report from Hoisington Investment Management. ‘Normal bank lending functions are essentially shut down. This risk now confronts the U.S.’ The problem is not the cost of credit; it’s demand, which is waning. Lower rates will have little effect in helping foster enough expansion to allow the mountain of total credit-market debt built up over the last 70 years to be repaid, or even serviced.”

Elliott Wave Financial Forecast, November 2011

Imagine if the newspapers reported that Bernanke appeared before Congress and said this:

“‘This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever.'”

Bernanke did not say that, but his counterpart in Britain did. As reported by The Telegraph (Oct. 6), the comment came from Sir Mervyn King, the Governor of the Bank of England.


The Fed is unable to stimulate the economy, the unemployment rate is not improving, and housing is in a “triple-dip” in some areas of the country. What does this mean for the markets and your investments in 2012?

Elliott Wave International just released a free report to help you navigate the markets and prepare for what’s ahead. You’ll get hard facts, 25 eye-opening charts and 14 pages of straightforward commentary that will put the volatile market action of the past months into perspective within the “big picture” to help you position for the years to come.

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This article was syndicated by Elliott Wave International and was originally published under the headline “Darkest Days” for the Economy: Behind Us, or Just Ahead?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.