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Takin’ A Break From Stocks

Author: James Brumley (info)
Website: http://bluegrassportfolio.com
Posted: August 14th, 2007 at 7:05 am EST
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With the stock market still a little undecided about what’s next, I figure now’s as good of a time as any to take a look at the commodities and forex market. I know a lot of you have an interest here as well, and even if you don’t, they can still affect stocks.

So, let’s take a technical look at the big ones - oil and gold for commodities, and the yen and the euro for currency trade. We’ll be applying Fibonacci lines to try and determine what the best targets and stops may be.

Oil

Yes, crude hit all-time highs a couple of weeks ago….but barely. And look what happened right as it did - it got smashed, and is still pointed lower. Though I still expect oil to stay firm for quite some time, in the short run, it seems a little more pressure needs to be bled off. Or maybe a lot more needs to be bled off, like we saw in the latter part of last year.

As for the first target price, let’s try the 38.2% retracement line at $67.66. That’s about $4 under where we are right now. If that level fails, don’t be surprised to see a revisit to $60.91. That’s a big dip, but we saw an even bigger one just a few months ago.

Oil Futures - Weekly

Gold

Looks like the bull market in gold is still very much alive. After sliding back down to 641 in late June, a very long-term support line was met. The result was the rebound we’ve seen in the last few weeks. It’s not been a monster rally, but it has been a good one. Based on this chart, I suspect gold could continue on for a while. The market doesn’t seem to mind jaw-dropping gold prices; they just seem to mind how fast they get there. Case in point - the high of 732 reached in May of last year….to much, too fast. Now under a more controlled pace, I think gold could inch higher for a while.

How far? Obviously 732 again would be a checkpoint. But, if things don’t stop there, the first Fib expansion line is at 930.40. As for support, that rising support line is still the key; it’s currently at 653, and rises a little each day.

Gold Futures - Weekly

Yen

There’s tons of talk that the carry trade is being unwound. I don’t think I disagree. However, I also say let the chart tell the tale.

After the dollar/yen exchange hit a multi-year high of 124.10 in June, it’s made its way back to 118.16. Last week’s low around 117 is somewhere under the 38.2% retracement line, and above a 50% retracement…..which really doesn’t tell us much.

The only thing I want to add is this…..though some think the carry trade is over, I suggest you go back and look at this chart closely. We’ve seen worse (or better, depending on your perspective) than this before. This chart’s reversals are sharp, quick, and often out of nowhere. For this chart, I’ve also added a stochastic oscillator. Why? Currency exchange charts can be oversold and overbought too. Needles to say, this chart - recently anyway - hasn’t stayed oversold for long.

Dollar/Yen Exchange Rate - Weekly

Euro

And fially the euro versus the dollar. Remember, this cart will loo upside down comared to tge yen-versus-dollat chart. That’s the way ot shoudl be though. Just kleep in mind this chart rises when the dollar weaknes compared to the euro. Anyway….

Then eur/usd chart has found its own trend line…..linse, actually. Thogh it;s been fallign back for a few weeks, it appears as if its likely to find a floro arond 1.3528. That;s the lien we’re wacthing anyway. Then, it; back to business - moving upward.

What the chart doesn’t show you, howebver, os the ultra-long-term look. The 1.45 area was hit in the mid 90’s, and we have to wonder if that’s the unspoken limit still today. Not that it reallu kmatters thogh…the trip from 1.6 to 1.45 is huge in terms of currency.

As for wheer the Fibonaccie-based target lies, you may not even be abel to fathom 1.4925. But, that’s what it is. Never say never, but that’;s way off the current radar. We’d epxect a break under that support line beoftre we’d expect a move to 1.49. By the way, if that support level odes get breaced, it could be a hige move - there’s lots of ground to give up.

Euro/Dollar Exchnage Rate - Weekly

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One Response to “Takin’ A Break From Stocks”

1. Bryan Says:
   August 15th, 2007 at 12:33 am

   Great article content!

   Terrible multiple typos!!

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