The continued decline in interest rate yield has a familiar trade firing-up on the technical charts. Over the last few weeks, we’ve seen volume and technical shifts in the gold and precious metals area of the market. Expanding the view away from Gold, one can piece together the current migration that is driving the transition.
Today’s three stock charts look at PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP), the SPDR Gold Trust (ETF) (NYSEARCA:GLD) and shares of Barrick Gold Corp (USA) (NYSE:ABX) as all three appear to be providing a different view than traders had anticipated in the first quarter.
PowerShares DB US Dollar Index Bullish (UUP)
The Dollar Index shot through the roof as part of the post-election rally. The vision of infrastructure building, focus on U.S. jobs and manufacturing had investors immediately turn bullish on the dollar resulting in a staggering 50% rally over a three month period.
Now, the dollar is backing-off as the political landscape has proved itself a little more rugged than most investors thought that it might be for President Trump. The failure to repeal and replace Obamacare has the administrations stepping a little lighter, causing many to reverse their expectations on lower taxes, infrastructure spending and protecting the Dollar.
The last point shows in the recent transition of UUP shares into a neutral outlook, which is likely to turn short-term bearish over the next few weeks.
The outlook for UUP comes from the pattern of lower highs, with the current potential high not being able to take out the $26-level, a technical line in the sand that many traders are watching closely.
The pattern of lower highs has resulted in a 50-day that is trending lower for UUP, which is one of the sources of the negative outlook for the dollar over the next three to four months.
SPDR Gold Trust (ETF) (GLD)
The Gold trade seemed to be left for all but dead last year as higher rates and a stronger dollar seemed to erase the need for portfolios to hold the yellow metal. Now, with rates getting shaky and the dollar on the decline, Gold and gold companies are getting traction again.
GLD shares went bullish in February as the 50-day moving average transitioned into an uptrend. The technical feature was somewhat dismissed, even by us, as it was attributed to uncertainty and short-term concern about the transition of the presidency.
Now, the trend has taken stronger form as the political landscape continues to degrade, adding uncertainty to the outlook for the economy and the strength of the dollar.
GLD shares ran into staunch resistance at their 200-day moving average last week. The quick rejection is a potential buying opportunity for those looking to get some “protection” from volatility.
For now, support for GLD should present itself strongly at $117.50 where we will expect to see increased volume on the buying side of the market.
Barrick Gold Corp (USA) (ABX)
Traders went after Barrick Gold shares ahead of the change in the outlook for Gold, and the move has paid-off. ABX is up almost 50% from the December lows and the current technical trends are suggesting higher prices through 2017.
In a likely surprise to many traders, Barrick Gold has remained in a technical bull market since early 2016, despite the fact that the commodity itself has fallen in and out of technical bull markets over the same period. In other words, the lows that we saw in 2015 help setup a long-term technical trade for ABX.
We are seeing some short-term weakness of late as Barrick shares have been unable to get over the psychologically significant $20-level. Three attempts since February have failed. That said, ABX shares are now building momentum for another run. Given the geopolitical buzz that is on the rise, we see potential for the $20-mark to give way to higher prices over the short-term on Barrick Gold.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
