Gold Gains: Could This Be The Week Stocks Turn Lower?By Kira Brecht
Monday January 30, 2017 09:41
(Kitco News) - Gold prices climbed higher in early trading Monday, while U.S. stock prices slid lower. Uncertainty is boosting gold as traders brace for a busy week of economic data, a Federal Reserve meeting and for potential fallout from President Trump's weekend immigration ban that triggered protests and legal challenges.
Red Flag Warning Signal on Stock Chart
The U.S. stock market rallied significantly since the Nov. 8 U.S. presidential election climbing from a low at 2123.56 on Nov. 8 into the all-time high at 2300.99, scored last week. That marks an eight percent move in just over two months. A bearish momentum divergence on the 14-day relative strength index warns that that the S&P 500 is vulnerable to a correction phase. The momentum indicator did not "confirm" the push to new all-time highs last week.
Gold prices eased last week as the yellow metal corrected its steady rally from the Dec. 15 low at $1,127.20 (basis Comex April gold futures) into the Jan. 24 high at $1,223.00. That represents an 8.49 percent rally move in about six weeks.
Conflicting Technical Signals
Digging into the gold picture, last week's action formed a large bearish outside week on the weekly Comex April gold futures chart. That is a negative signal and marks out a short-term top and resistance at $1,223.00.
However, the price retreat into Friday's low attracted fresh buying interest and support formed at $1,182.60. A small hammer bottom formed on the daily candlestick chart on Friday, which is a short-term positive signal. Daily momentum has already worked off its nearly overbought readings that were seen in mid-January for gold futures.
Who Will Win The Short-Term Gold Battle?
Intermarket analysis could be the key driver for the gold market this week. Will the U.S. stock market begin to succumb to a correction phase? If yes, that will drive fresh support for the gold market amid safe-haven demand.
Market triggers: There are a number of key fundamental drivers this week, including potential fallout from the immigration ban, which could increase political tensions. Also, while traders do not expect the Federal Reserve to pull the trigger on a monetary policy rate hike on Wednesday, the post-meeting minutes will offer important clues to future policy direction. Finally, Friday's release of the January employment report will be closely watched as always.
The bottom line: The S&P 500 is vulnerable to a set-back. Support lies at 2257-2254 and if that floor were to crack it could unleash a larger selling wave in stocks.
In gold: the $1,223 level remains the key level gold bulls must conquer short-term to open the door to a test of its 100-day moving average at $1,238.90 and beyond. Strong short-term support has formed at the hammer bottom at $1,182.60. As long as gold stabilizes above that floor gold bulls will retain the short-term technical edge.
By Kira Brecht, contributing to Kitco News;