Gold, currently being traded around $1,250 levels, is coming down with its worst monthly drop since November 2015, when it was trading around $1,050 level and Louise Yamada of Technical Research Advisors, is of the view that gold is going to drop further to $1,200.
While talking to CNBC, she said;
We still have another target outstanding at $1,200 right. It could bounce back a bit as gold is going down steadily for 4 weeks and it wouldn’t surprise me if it bounces back to $1,270 levels. But we just had a monthly momentum signal which puts the daily, weekly & monthly momentum, all negative at this point. So, the path of least resistance appears down from here. If it were to go through $1,300, that would reverse the whole concept of continued decline but i think after a little pause, we can see lower levels.
Louise considered lower price for gold and when asked about her prediction of the lowest level for gold in coming days, she said;
The next target is $1,200 and as it took 4 weeks to get here, i would say, it will take a number of weeks to get there notwithstanding a short-term interim rally.
When asked if she has a positive outlook for gold, even by the end of this year, as stock markets are performing well and gold’s relationship with Dollar appears to be strengthening, Louise responded;
There is a ratio of relative strength relationship between gold and the stock market. Generally, when the stock market is doing well, the gold under performs. That means if the one goes up, the other goes down and if the stock market starts to falter, its conceivable that we get a bounce in gold but we haven’t seen it yet and we don’t have evidence to that, as long as the monthly moment is negative.
Commenting on Dollar and gold’s relationship, she added;
Dollar and gold have been going in the same direction for 2017 but its not a strong relation as it was decades ago. So i would be more inclined towards the gold versus the equity market.
Louise had an overall negative outlook for gold but she did mention that gold has been witnessing resistance between $1,366 and $1,375 over the past 3 years. So if gold breaks this resistance, a 3 year consolidation can be seen and she also recommended to let gold break the $1,400 level, so that a 5 year resistance gets cleared that would result in a better outlook for gold.
Wait for an upside proof for U.S. stock markets
Low trading volumes have been seen during the up days of U.S. stock markets for past few months. Trading volumes should have been higher during these up days but only the down days have shown some high volumes. This has to change to heavy volumes on up days of the markets if a growth in stocks is to be projected.
Louise is relatively bullish for equity market and while talking to Bloomberg, she said;
We have been in the range bound market for 3 months. If you consider that, the Dow has to get through the January peak of above 26,600, S&P to 2,900 and NASDAQ has gone through one peak but it has one more to go.
When asked about her recommendation for profit taking in the uncertain market or holding the position for better returns, she said;
I think at this point, after 3 months of testing support or creating support levels, we have been cautious and until we start to see the majority of technical indicators going positive and the volume starts to pickup at the demand side, we are in the middle. We are watching for the proof of upside.
As the market is in a range bound consolidation phase, Louise revealed the support level for Dow Jones at 24,000, for S&P at 2,600 and for NASDAQ at 6,800 and recommended caution while stating;
We could go sideways for an extended period of time which would be positive for consolidation were it to break to the upside, because the larger the consolidation the more upside potential. If it were to go sideways and break down eventually, we will have another story, that’s negative, on the downside.
Oil & Dollar are looking more positive
Oil has been moving up, breaking resistance levels at $65 & $70 with a positive outlook. Louise is expecting the price to go higher up to $80 but would be facing a strong resistance at that point. She said;
When you get close to $78-$80, you are in the range of 8 year resistance and you can see another pause.
Just like oil, Dollar has been showing upside and gaining momentum. According to Louise, the momentum can continue up to 92 level and if it gets to the 94 level, the monthly momentum can become positive, making it more stronger. Commenting on the positive outlook of Dollar, she said;
Dollar showed us a very nice positive momentum. As the price went lower, we saw the momentum hold at a higher level versus the 2017 September low. The positive momentum in holding the uptrend was an indication that the Dollar could rally. So, 92 and it could see 94, where you encounter a downtrend line and a little bit of resistance coming in but if you get through the 94 level, you can certainly go higher. But, you certainly get the 94 level in the window at the moment.