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The Roadmap To 2015 (Part 3)

What will be in store for Gold & Crude Oil?

This will be the third instalment for my global markets outlook for 2015. Just a quick recap and for those who misses my previous write-ups, their respective links are here; Part 1 & Part 2 .

Before I start to show some interesting findings in the major commodity markets, let’s us take a look how the different asset classes perform in 2014 as shown below.

Source: www.stockcharts.com. Shown for illustrative purposes only. Past performance is no guarantee of future results.

The U.S. stock market as represented by the S&P 500 and U.S. dollar are the leading the pack with returns close to 12% respectively. Interestingly, U.S. treasuries (taking the Barclays Capital 7-10 Treasury Index Exchanged Traded Fund) as a proxy did quite well as it has managed to “squeeze” out a return of around 8% despite most market watchers’ expectation of a sell-off in the U.S. treasuries.

The worst performer is the commodity markets as represented by Thomson Reuters/Jefferies CRB Index which has registered a horrendous decline of 17%

As expected, the major contributor for its demise came from the “Energy” space which was hammered down by a 57% decline seen in crude oil. The performance of the respective different commodity classes as shown below have indicated a clear “outlier” in  the S&P GSCI Energy category (down by 43% versus single digit % decline for the rest except Livestock).        

Source: www.stockcharts.com. Shown for illustrative purposes only. Past performance is no guarantee of future results.

Fast forward, let’s us take a look at the charts of WTI crude oil and Gold (futures) to decipher their expected movement in 2015.

WTI crude oil

As at the date of this writing (dated 13 January 2015), WTI is challenging a 14- year old trendline support in place since November 1998 at 46.80.  Even though, the RSI and Stochastic oscillators are grossly “oversold”, there are no “signs” of a potential turn around yet.

It does not pay to catch a “falling knife” and the next critical support to watch will be at 37.00/33.20 which coincides with the significant January 2009 swing low and 0.618 Fibonacci projection from 07 July 2008 high to 23 June 2014 high.

Gold (Futures)

Key elements of Gold (futures)

  • The 41% decline from its all-time high of 1923 printed in September 2011 has started to shown signs of stabilization through the formation of a “Doji” and “Inverted Hammer” candlestick patterns (see monthly chart).
  • Downside momentum has started to wane as indicated by the bullish divergence signal seen in the RSI oscillator (see monthly chart).
  • The 34-month Moving Average is coming to act as a resistance at around 1430/1525 (see monthly chart).
  • The 1430/1525 zone also coincides closely with the upper boundary of a descending channel in place since August 2011 and 50%/61.8% Fibonacci retracement from 05 September 2011 high to 03 November 2014 low (see weekly chart).
  • The 89-week Moving Average is coming to act as a resistance at 1243 which also coincides with the pull-back resistance of the former “Symmetrical Triangle” configuration (see weekly chart).
  • The weekly RSI oscillator has just broken out of its former trendline resistance and 50% level (see weekly chart)

Given the “usual” inverse relationship with Gold and U.S. Dollar, let’s us take a look at the long-term chart (monthly) of the U.S Dollar Index.

U.S. Dollar Index (Futures)

The multi-month bullish trend in place since May 2014 is now coming close to a significant resistance zone at 91.10/92.30. In addition, the RSI oscillator has reached an “extreme” overbought level not seen since October 2000.

Thus, current technical elements suggest that the on-going strength of the U.S. dollar may take a “breather” below 91.10/92.30 to see a possible 5% to 10% correction before resuming its long-term bullish trend. A potential drop in U.S. dollar tends to be favourable for Gold.

Conclusion

This intermarket analysis supports a potential multi-month tactical upside movement - “relief rebound” in Gold as highlighted in its charts.

As long as the 1130 support holds and a break above 1243, Gold may see a corrective rally towards 1430/1525 in Q1 2015 before its long-term bearish trend resumes.

The decline seen in WTI crude oil is “overstretched” but there are no technical elements to suggest a “bottoming” or “significant rebound” phase is round the corner. The next critical support to watch will be at 37.00/33.20.

Charts are from eSignal

Disclaimer

The information contained in this material is intended for general circulation only.  It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs.  Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.  All queries regarding the contents of this material are to be directed to City Index Asia Pte Ltd.

 

kelvin_wong
Kelvin Wong, CFTe

Chief Technical Strategist (Asia), City Index

Kelvin is professional technical analyst with extensive experience in stock indices, equities and foreign exchange. Kelvin employs a combination of fundamental and technical analysis and specialises in utilising Elliot Wave and Fibonacci analysis to pin point potential reversal levels in the financial market. Prior to joining City Index, Kelvin has traded actively and provided investment advisory for institutional traders/investors such as Deutsche Bank, Credit Suisse, ANZ and Goldman Sachs. He has also conducted technical analysis related trading workshops and seminars for thousands of private traders in Singapore and Malaysia.