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Best Trades for 1/14: Gold, Oil, NZD/USD, USD/CAD, GBP/USD




S&P 500, Other Major Global Stock Indexes:

Advice: Earlier we recommended avoiding long plays until it hits stronger support or breaks decisively above 1120. It did that and continues its steady rise. Stocks still managed to rise despite disappointing US jobs reports, suggesting that risk appetite is both resilient and that the belief in growth and higher valuations is alive and well for now. Currently back around 1142, and again in its Bollinger Band buy zone (the upper 2 bands).

The safer move is to wait for a pullback, like we saw on the 12 preferably to some kind of support level, and then jump in when that reverses, as happened yesterday. However, we urge those long on any risk assets to keep tight stop losses in place, given:

· The potential time bombs that continue ticking under the US banking and housing sectors, as well as in

· The Euro-zone sovereign debt default threat area –Update: Portugal received a warning about another downgrade from its current A+ rating following a downgrade January 21 2009.

· The Fed has now warned banks to get ready for rising rates and the certain increase in mortgage defaults. Stocks do not tend to do well in an environment of rising rates

· The very real falling demand for US Treasury bonds, which the US must keep issuing, and thus the very real incentive for Washington to allow stocks to crash a bit and drive up US T-bond demand (hat tip to Graham Summers for that observation).

Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", always take a look at the daily chart (or other relevant timeframe to the style you trade) for a picture of overall risk appetite or aversion. The current picture is bullish/long but the move may be losing momentum and flattening out.

S&P 500 Daily AVA FX Chart (02 Jan 14 )

** GOLD: Commentary: Recovering about half its losses from Tuesday Wednesday, steady thus far Thursday. Will continue to move with sentiment, which in turn is moving with US earnings reports and major news items. Yesterday's drop shows the amount of short term speculative anti USD hedges involved that will run if trouble. Conservative traders will be cautious about new positions until the theme of US earnings season (and market reaction to it) clarifies.

Trade Suggestion: Long: Conservative traders should avoid longs for now until it either retests and holds near the the 50% Fib level at $1125.41, or breaches price resistance at 1154 for a target exit around the 23.6% Fib level at 1175.75

We do not recommend opening new shorts until gold breaches the 50% Fib support level with a stop just above your entry point (with then a target exit near 1103, the 61.8% Fib level, OR after gold tests and fails to break over the 38.2% level around 1148.

Gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold's near term moves. Also watch the S&P 500 and other major stock indexes and news to see if risk appetite gets a lift from improving spending, jobs, or other data that ALSO boosts USD stimulus exit and interest rate expectations, thus supporting the dollar and driving down gold.

Gold Daily AVA FX Chart (03 Jan 14)

Crude Oil: Virtually unchanged since yesterday, sitting right at the 38.2% level, a great entry point long or short with stop loss within about 30 pips. Crude is volatile, so best to accept being stopped out and then just jump on the trend in the other direction. Will move with risk appetite and the dollar, which for Thursday rests with:

The ECB statement: Recommendation: IF upbeat- Consider going long with target near recent highs and stop loss just below your entry point. Rational: good for the euro, growth, bad for the USD, and thus bullish for crude oil). The opposite applies if the ECB is gloomy or sounds dovish, which would likely undermine the EUR and boost the USD. The short target exit point would be just before the next Fib level down (38.2%), with stop loss just above the entry point. Again, Oil can be volatile, so keep the stop loss close, accept the higher risk of being stopped out, and then just jump in on the other side.

Retail sales: (likely to affect both crude and the USD the same way, since spending is a key metric the Fed is watching for deciding the pace and extent of QE exit, and is also pro-growth and good for oil. Thus harder to call this one, though it would benefit the dollar more because it is much more beaten down than oil, which is near 12 month highs.

Intel earnings: If positive, go long as per instructions above. Rational: good for growth and thus crude, but doesn't address the key jobs or spending issues that would boost the US dollar, so the dollar would likely react as a low yield safe-haven currency and weaken, further boosting oil.) If disappointing, go short oil, as instructed above

Watch the EUR/USD chart for USD movements, and the S&P 500 chart for overall risk sentiment.

WTI Crude Oil Daily AVA FX Chart (04 Jan 14)

EURUSD: Price and recommendation unchanged from yesterday: Like many of the anti-USD Forex plays, jumping higher in the wake of the weak US jobs report and weakening USD. Given the clear short term bias to risk assets shown in the S&P 500 chart above, current bias is long.

Recommendations unchanged.

Long: Wait until it breaks the 1.4600 resistance level or retests the 1.4428 (50%) Fibonacci retracement level, with stop loss just below the recently broken resistance turned support.

Short: At or near a break below the 50% Fib level, this has been stubborn resistance lately.

Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.


NZDUSD: Price and recommendation essentially unchanged, currently at 0.7429. Recommendation unchanged. Gaining on the US dollar like all high yielding or risk currencies, but currently too close to the 61.8% Fibonacci resistance at 1.4785,

Long: Can enter around current levels 0.7420 and use the descending downtrend line as a support level to place a stop loss nearby, with a target of 0.7563 for a 3:1 reward/risk level

Short: not yet – wait until some major pro dollar or fear news breaks and enter just below the declining down trend line, placing a stop loss just above it, and with a target around the 76.4% Fib level for a 2:1 reward/risk at least.

Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on further news on US economic fundamentals and Euro zone sovereign debt issues.

NZDUSD Daily Chart (05 Jan 11) AVAFX CHART

USD/CAD: Following oil, so consider going LONG or short NOW near current price of around 1.0372. If you see the pair pulling back, wait until the 76.4% Fib support level holds before going long, with target at the next Fib level higher Just tested resistance, which held, so has support for oil as of early Tuesday. SHORT around the current 1.0322 level, stop loss around the 1.0368 level, target around 1.0200 for a 122/66 pip (almost 2:1) risk reward ratio. Not ideal, but given the momentum, not unreasonable to try. LONG: not until oil or the USD reverse momentum.


USDCAD DAILY AVA FX CHART (image: 05 Jan 13)

USD/CHF: Essentially unchanged for the past 3 sessions as of the time of writing. Go long if the 50% Fib level is breached, short if the 61.8% level is breached, with stop loss just on the opposite side.



Sitting right at the 50% Fib level, great entry point long or short. Momentum is with the pound, despite lack of fundamental justification, so we focus on technical criteria. Clearly a price support resistance level here over the past 6 weeks. No major UK news for the rest of the week, so the pair should move with USD news as noted above for oil, with targets near the next Fib level above or below, with stop nearby in the opposite directions.

GBP/USD Daily AVAFX CHART (05 Jan 14)