The energy sector has picked up momentum with the stock picks from XLE with continued relative strength in the sector from a weekly perspective. Daily RRG are showing XLE sector ETF weakening however our stock picks remain in the leading quadrant of the graph. With this in mind it would be good practice to revise stop loss positions protecting profits or adjusting to B/E.
HAL: Stop loss adjusted to $28
BKR: Stop loss adjusted to $23.50
CTRA: Stop loss adjusted to $26.50
XAUUSD has broken down from its long-term support around $1680 with a series of lower highs taking place. The precious metal appears to have found a short-term base around $1618 however given the continued downward pressure, we expect this to give way as long as momentum remains bearish.
The correlation between real yields and gold prices over the past 20 years is (-0.82) due to the high opportunity cost of holding a non-interest-bearing asset. Furthermore, there is a negative correlation between growth periods in the Federal Deficit and prices of Gold; given the damage Covid 19 caused to the Federal Deficit gives further reasoning for the downtrend in Gold to remain in the medium term.
Our idea for this would be to play a lower leverage trade via SPDR ETF which tracks the market movements with slightly less volatility and leverage. This is preferred over more advanced options or leverage strategies given the increase in volatility for the time being.
XAUUSD (4HR CHART) - for easy illustration only
The line in the sand for this idea would be a break back above $1675 level. This is a key zone for us as highlighted by the green box in the image below (image 2), it shows us a strong weekly point of control alongside single print highs and value area highs on the weekly TPO chart:
Weekly TPO chart (Image 2)
Summary
Given the strong resistance in the futures market coupled with the economic outlook and data correlations, the preference for the short to medium term would be to remain bearish until signalled otherwise.
Please always remember this is not personal financial advice but rather our take on what the market data is telling us. Always reach out to qualified advisors for tailored advise.
Let us know your thoughts regarding these ideas and get in touch for any queries.
A Sweeney
Comments