Yes, I know you may be a little sick of it, but there is a reason I keep harping on both Gold and Crude. They’ve acted as fairly prescient proxies for currencies and economic conditions/ expectations for quite some time and stand a good chance of continuing to do so looking ahead… As such, we need to be paying attention to them, no matter what we’re trading.
This is especially true now, given the deceleration of momentum in our own economy and that of China, as well as the fact the situation in Europe is becoming more acute and problematic for the rest of us and for the global markets in general. Thrown into the mix are issues such as the coming election, the recently enacted QE3 initiative on the part of the Fed, middle-East tensions, seasonality fear (historical negative September returns and October surprises) and uncertainty over the “fiscal cliff “ factor looming after the first of the New Year.
All things considered, I’d suggest keeping an eye on both Gold and Crude, as they may well be the “tell” we’re looking for in terms of how to play this market in the coming quarter. Although both have retraced a decent clip as of recent, neither has broken down in troubling fashion. Gold still looks strong and poised to move north. The one caveat regarding Gold acting as a signal for the rest of the market is in fact QE3—which could propel the precious metal into a northerly run even in the face of declines in other areas of the market.
As such, I focus for now more on Crude because it may give us a quicker, truer read, given that it has been coiling for quite some time and has formed into a wedge that looks poised to break soon in either direction.
Not about to guess which direction it will go, but if it does hold Wednesday’s low—which hit long-term support—then the coming sessions should see crude into an upside test to long-term and psychological resistance around the century mark. Things would surely get interesting then on a confirmed break. Inversely, a failure to hold now and those worries overhanging the market are likely to set in more deeply…in which case the broad markets might just find themselves caught up into another October downside surprise…
Time will tell…