Going For DJIA 18000

October 26, 2015

As hinted at here since the DJIA held at and started to bounce off 16000, recovery to 18000 must have a very high priority as a signal for the man on the street that the US economy is really healthy. Thursday and Friday saw a substantial 480 point jump in the DJIA – rising steeply on Thursday and again on Friday after news of the lower interest rates in China. One may almost suspect that Thursday’s performance was in anticipation of the news. As this week’s chart shows, the DJIA is just above and close to important resistance at 17593 and 17699 respectively. These have to be breached if the likely target of 18000 is to be reached. This is becoming very important – as is a strong dollar and low yield in Treasuries – because more voices warning of trouble for the markets and the economy are being heard from people who are respected for their views across a much wider forum than that reached by the traditional doomsayers. Sooner or later that message will sink in.   

Much is being said about growing problems in various sectors of the US economy – and of course elsewhere in the world, including Asia – but for me the main signpost to a dismal economic feature remains the wide disparity between increases in the cost of living (CoL) of worker (and employee) households in the US and increases in the wages and salaries of these households. Consider the official statistic that most worker households enjoyed annual increases of not much higher than 2% while the increases in the prices of consumer goods, as per the Chapwood Index, in various cities across the US range for about 8% to 13%.

No wonder the number of Americans on the SNAP (foodstamp) program jumped to nearly 50 million, from about 6 000 in 2002, and only remained stable at this high level after budget limits were set for the SNAP program. Which means either some households are on starvation diets, or they have been accommodated elsewhere in the government’s handout programs to limit the negative news from a very visible food stamps program, should the number of recipients rise higher than one in seven Americans. A strategy of hiding the bad news, trumpeting any good news, real or fabricated; this sounds very much like Orwell’s ‘1984’! Only three decades late.

The ongoing impoverishment of working America is the primary – and, by itself, for me a quite sufficient reason to believe a time will come for the economy implodes. One cannot reduce a significant proportion of consumers who are responsible for a major fraction of GDP to beggars who have to suckle at the teat of government to survive without serious economic woes arising. The fact that the reason for growing inequality in income surly must be known to any serious economist and yet nothing is being done to rectify the causes of the situation – apart from the SNAP program and similar ‘solutions’ – implies that the people responsible will deserve what they get coming when that happens.

The DJIA is singled out this week, but this meddling applies to other markets too.

Euro-Dollar Chart

The rising trend of the euro, off support at the bottom of channel AD ($1.0641) is still contained in the new bull channel, KL (K $1.1813: L $1.1106), but only just. The volatility in the forex markets continue, with the US dollar over-coming recent weakness to rally steeply in conjunction with the streak higher on Wall Street. The support at line L is now very important; a sustained break below that support will confirm the break below line Y ($1.1238) and open the way for another move lower towards line D.

A weaker euro is of course good for the euro price of gold, but too much of a good thing is – as we all know – no longer a pleasure or an advantage. The US close of this exchange rate will be closely watched this week!

Euro-dollar, last = $1.1108 (www.investing.com)

Dow Jones Industrial Average (DJIA)

The recent shake out on Wall Street had the DJIA fall steeply by almost 2000 points before recovering to settle in a volatile range around and just below line B (16577). That lasted until the bull took over again, rallying to play with the resistance at line K (16957) before the next spike higher late last week.

The DJIA closed on Friday marginally above resistance at line L (17593) and a little short of the next resistance at line A (17699). A break higher, above the resistance,  should be bullish, with the next resistance at line M (18087) as a likely target, while a reversal lower has to break below lines K and B (16577) again to confirm.  

Dow Jones Industrial Index, last = 17647 (money.cnn.com)

Gold PM fix - Dollars

Gold price – London PM fix, last = $1161.25 (www.kitco.com)

The break higher from the large pennant GL ($1137) is still intact despite the gold price struggling to extend the break higher. Key support is at line R (1127), which is not all that far below the new consolidation range, but has not yet been tested. 

The break higher from the pennant at the end of its leg 5 is still assumed to be as a sign that the new bull market has started, but is taking its time to get going. While the price can still come under pressure, especially as happened whenever the price approached $1170, significant support at the top of the pennant at line L and, if that should fail, also at line R ($1127) can be expected to hold firm.

Gold PM fix - Euro

Euro gold price – PM fix in Euro, last = €1054.0 (www.kitco.com)

As shown earlier, the euro took a knock late last week and it has helped boost the euro price of gold to a new recent high, just short of resistance at line X (€1059). A break higher here – at a line that has been significant on a number of occasions – will leave the top of the triangle AS (€1074) quite within reach.

There is scope to move sideways, either because the gold price has sold off again or because the euro stages a recovery. A better performance by gold itself, to result in a break above the resistance of lines X and A should confirm a nascent bull market and will be most welcome for this community.  

Silver Price Daily Fix Chart

Silver daily fix, last = $15.98 (www.kitco.com)

Given the way the silver price has behaved for quite some time now – with sudden moves of limited extend and duration only to settle in a tight sideways band for a week or two – it is no surprise that the break higher from pennant GS ($14.49) has failed to immediately extend above resistance at line D ($16.26). The price is again consolidating in a tight range between line D and the rising support of channel KL ($15.60), with the room to move sideways rapidly disappearing.

If the technical patterns correctly anticipate key support and resistance levels that will indicate the new direction or trend on a break that has to happen quite soon, we may now what silver intends doing by the end of this week. Both lines D and L seem to represent strong gradients and it is thus not easy to anticipate what the direction will be.  Given the bullish bias of the break above the pennant, the odds favour a break above line D to turn bullish.

U.S. 10-year Treasury Note

The yield on the 10-year US Treasury note remains above market resistance along line F (1.995%) and have rebounded a bit higher after testing that resistance too long ago. Market support is at line B (2.09%) and until either the support at line F or the resistance at line B is penetrated, the trend is likely to be range bound.

U.S. 10-year Treasury note, last = 2.087%   (www.investing.com)

West Texas Intermediate crude. Daily close

West Texas Intermediate – Daily close, last = $44.60

The price spent quite some time sitting on support from line D ($45.09) in a tight sideways trend. During the past few weeks the price briefly kicked higher to remain in bull channel FG ($48.91), but has broken below the channel to test the support at line D again, with some early success.

The new break lower below bull channel FG brings a bearish bias, which may have been confirmed by the marginal break below key support at line D. While the break is still tentative, any further weakness should see the price moving lower to seek and test support at line T ($40.82) again

©2015  daan joubert,   Rights Reserved      chartsym (at) gmail(dot)com

Gold is impervious to rust.

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