Commodities and Dollar Update - Markets Waffle

Published on June 6, 2017 @ 7:50am

The markets opened modestly lower this morning following a feeble attempt to keep moving higher yesterday. No surprise really considering how good of a week they had last week. However, we'll still need to be a little cautious in the event they start selling off more dramatically.

Like we mentioned yesterday, the NASDAQ did achieve our short-term target of 6,300, even though the S&P 500 still has some ways to go before it meets our 2,500 target. It's possible the S&P 500 now wants to come back to its 3X3 DMA (blue line) on this daily chart before it could be in a position to start working its way higher.

Once again, what we don't want to see is a complete wipeout of late last week's move. That wouldn't be good.

Oil's still trying to hold that key retracement level we pointed to yesterday, but even that's not looking too hot right now, but we'll see if it can hold and rally, or simply breaks down on its way to our ultimate target of $37 per barrel. If it does the latter, we'll take a hard look at some of the better oil names out there if and when it gets there.

Gold, on the other hand, is ripping higher, which you can see in this daily chart of GLD, the primary ETF tracking the price of gold. Although we are pretty surprised about its recent move, we can probably attribute it to something we called late last year when Trump got elected - a weakening dollar.

It's pretty well documented here we called for a falling dollar, since Trump made it very clear other major world currencies were out gaming the dollar in an attempt to keep their exports propped up. It has become quite apparent our own administration is now playing the currency game in an effort to improve our own exports here at home now.

The weekly chart of the dollar index is enough to paint the picture here, but it does look like it's rapidly approaching a key retracement level - one that will likely rally the dollar at some point, thus putting pressure on gold. So, the takeaway today is we may get an opportunity to short gold at some point over the next few weeks.

We're still strongly convinced there's a developing reflationary economy, but it's obviously not going to happen overnight.

What's really odd, however, is even with gold's big rally in recent weeks copper still doesn't seem to want to perform. It's not like it's been cratering, but the weekly chart of COPX here, the primary ETF tracking copper, does continue to sit around a key retracement level, and equally important appears to suggest declining volume.

For now, that could be a good thing, as sell side pressure appears to be declining, but the flip side of that is no real strong buying interest - not yet anyway.

We'll keep an eye there, because at some point copper is going to move dramatically higher, it's not a matter of if, just a matter of when. However, it could still move lower before it does - despite every fundamental reason for it to move higher right now.

Let's hope the broader markets are able to reverse the early weakness, because a move to 2,500 on the S&P 500 will likely result in some very nice gains with many of our currently open ideas right.