To start the week, stocks broke badly on rumors of a cancellation of trade talks, then reversed with unprecedented volatility (on news the meeting would take place) to gap over our 89 line trendlines, reaching major Fib resistance (298.74), then falling sharply in the last 40 minutes to close on the lows for the day (296.28). The upshot of the meeting: In return for some modest concessions, most of which were previously offered by Xi, (buying large amounts of US agriculture), Trump agreed to suspend tariffs scheduled to start next week. The markets overall net gain: less than 3/4 of 1% for the week. With new highs in the New Economy sector, (YOY buybacks +39%, most since 2000*) led by Tech buybacks) vs the Old Economy, we continue to believe only relatively modest sell-offs in the near term are the likely scenario. Stocks should find Fib support SPY 292.09, with a low day expected Oct. 17. However, with our Upside/Downside studies remaining bearish, and Bearish Momentum divergences completing its set-up, a break under our trendlines should follow, with Fib support at SPY 287.10. Sometime in 2020, we expect to see 265 – 263.
*Bank of America, Jill Carey
In keeping with our scenario for more choppy trading, the metal started the week under pressure, with a spot low print 1488.20 on Tuesday, rallying to 1516.50 by Thursday, then under a barrage of paper selling during US/China negotiations, fell sharply to 1473, before closing Friday 1489. A spot gold print 1521 will constitute a break-out. The shares were weaker compared to bullion, but registered back-to-back Bullish Weekly Squats in a fake-out week (higher high, lower close). With GDX trading into our 89 line trendlines, we expect a strong bounce with our Weekly Upside/Downside volumes turning bullish. With more time left for sideways trading still likely, we’re allowing for an alternate scenario for GDX of additional downside. GDX Fib support 25.51 (strong). GDX resistance 28.87, 30.00. GLD resistance 143.91. Silver is outperforming gold, and should continue to do so when the metals start the next bull phase. With a spot gold target of 1670, spot silver should trade 25.69, as the gold/silver ratio shrinks to 65. SLV near term resistance 16.86, 17.79.
The greenback broke the enormous rising wedge formation, (UUP 26.85), its been holding since June 25, closing 26.82. Initial downside target 26.59 – 26.54. A Weekly close under 26.54 turns 89 line trends lower, with strong Fib support 26.29.