5/1/2020 - Trading Lab Morning Email

Weekly closes take on much greater importance to me than daily closing levels. The reason is obvious, weeks constitute five days and take into account a greater market consensus than a daily closing level. Many times market participants get caught up in ultra-short time frames only to lose sight of the bigger picture. A double-top on the 15-minute chart might quickly dissipate if given a few days. Whereas, prices might move above a key level intraday but close back below that resistance level on a weekly closing basis.

As this week comes to an end we have two markets that are of particular interest to me; gold and the S&P 500.

Gold has been wrestling around the $1680-$1700 area since January and today it faces a big test as to whether it will end the week above $1690 or below $1680:

Gold (Weekly)

Technical factors remain positive for gold, however, there are mounting signs a correction is underway and it's probably not an accident this correction is coinciding with increased economic optimism and optimism that we are past the worst point in the COVID-19 crisis.

While there may be some reason for optimism, I believe the gold bull market is underpinned by powerful and long lasting structural factors. The Fed is past the point of no return and global central banks and treasuries have embraced MMT as their new playbook. This in itself ensures that dips will continue to be bought in gold, and that the gold chart will continue to be characterized by higher highs and higher lows on the longer term time frames (weekly and monthly).

Turning to the S&P 500 I have been pointing to this trend line drawn from the March 2009 low for the last couple of weeks:

S&P 500 (Weekly)

The fact is that the backtest of the uptrend is coming in right around 2875 on the cash S&P - this level coincides with horizontal resistance dating back to 2018. A weekly close below 2850 would be decidedly bearish, whereas, a close back above 2900 would probably trigger further short covering.

Today will be an interesting trading session and depending upon how things play out it could give market participants a lot to ponder over the weekend. 

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