Next Week Decisive For Markets

By AG Thorson

Sunday, December 16, 2018 1:27 PM EDT

We are entering a decisive week for the markets. The Fed, with their December ruling, will determine where capital flows for the next several months. Will they hike next week or pause immediately? The collapse in oil eased inflation expectations and gave the Fed some breathing room – I’m not sure what they’ll do.

Frankly, anything can happen next week, and we need to be on our toes. By Friday we should know how and where to be positioned.

GOLD WEEKLY

It took gold 17-weeks to reach the 50-week EMA from the August $1167 low. The gradual stair-stepping higher is consistent with a bear flag correction and supports another breakdown. At 17 weeks the cycle is suitably mature and could easily top. Note that since last December the intermediate cycle has shifted every 17 to 18 weeks. Next week is the 18th week. So timing wise gold is in the ideal timing window for a top.

From a technical standpoint, the 50-period MA is a frequent target for a price correction…we are there. The 50% retracement level resides at $1269. That too is an area corrective pullbacks often arrest.

The technicals recommend a top in gold either last week or perhaps next week. However, the setup could be void instantly with a principal policy shift from the Fed. Yes – they are going to slow down rate increases but how slow? Will they even hike next week? The Fed watch tool is at 76.6% – that’s not a guarantee. If they pause immediately (no December increase) gold could jump higher. Gold would have to close next week above $1270 to make a run at $1300 – $1310 by year-end.

US DOLLAR

This looks like an ascending triangle. Most of the time these patterns break higher, on the flat side.

CRB WEEKLY

One of the main reasons I remain short-term bearish on commodities is because of the CRB. Every three years or so this index delivers a primary cycle low, often in the first quarter of the year. The head and shoulder measured target supports a drop to approximately 167. Also, every 3-year cycle must break the cycle trendline, that has yet to happen. Consequently, a multitude of factors sponsors additional weakness in commodities into early 2019. That’s when I expect a good setup in oil.

SILVER

Prices finished the week building a 3-candle bearish evening star pattern at the $14.85 boundary. We could still see a spike or false breakout (similar to June) that tests the 200-day MA next week. The volume will be key. We should know silvers true direction by Friday’s close.

GDX

Miners would have to explode above the resistance box by year-end to support a new bull phase. I think prices are close to a top and will decline into the buy zone in early 2019. If a top becomes likely, I’ll reduce my hedge and return to net-short.

SPY

I’m interested to see how stocks respond to Wednesday’s Fed announcement. Key support remains at the long-term red trendline and February 249.66 low.

WTIC

Oil could be forming a small triangle or pennant. The OPEC meeting didn’t push prices higher. I’m expecting mid to lows 40’s in Q1 2019. That should coincide with a 3-year low in the CRB.