April 11 – Earnings, Earnings, Earnings!

Today’s daily update will be longer than usual since there’s a lot of new information to cover. Some information concerns the news released yesterday. Will also be posting a weekly update later this weekend which will include a lot more charts that show the analysis for Gold, USD, and 10 yr yields. Stay tuned for that!

Overnight Headlines:

  1. The EU granted the UK their Brexit extension until Oct 31. This allows more time for May to approve her post-Brexit trade agreement with the EU, which is crucial to avoid large business disruptions given how integrated the supply chain is between the two sides.

Current Position
I have 10% in $DUST that I entered yesterday at close, the average cost price right now is $17.5. Will be looking to add more to the position as it retraces. The entry zones in the chart are general points where I think it might retrace to, however it could change as I monitor the price action in the next couple of trading sessions. Please stay tuned for updates.

Today’s Trade Update:

After examining the news flow from yesterday, the general economic backdrop of the US remains supportive. A relatively overlooked piece of news today was that progress is being made on enforcement of the US-China trade deal. The CNBC article confirmed that both parties are going to set up enforcement agencies that will monitor each other’s commitment to the deal. Since enforcement was one of the biggest roadblocks for this deal, this progress increases the chances that the deal will be finally struck. This news is coupled with the Fed implying a no rate change policy for the entire year, which gives investors one less factor to worry about.

Earnings, Earnings, Earnings

All eyes will be on corporate earnings this quarter, as investors find out whether all the negative downgrades in forecast earnings are as bad as predicted. We’ve been seeing headlines predicting lower and lower corporate earnings projections, there’s a higher chance of positive surprises due to the already low expectations.

If earnings turn out to be decent, or at least not as bad as everyone thinks, I believe market sentiment will improve further and will bring back a lot of money that investors have been putting to the side. If this is the case, gold will lose its upward momentum as more people pull funds out and invest in riskier assets.

Due to these reasons, I’m bearish on gold miners in the short to medium term. I would look to start building a position in $DUST (inverse leveraged etf tacking GDX, opposite of NUGT). However I am only committing a small percentage of a position right now, as I want to wait and see more structure (clear direction) in the price action before diving in. I will be looking to add 20% of full position for now, in 2 trades of 10% each at different entry points.

GDX Gold Miners ETF

April 10 Review

As we wrap up yesterday’s trading session, we can see that our cautious position sizing helped us defend against yesterday’s volatility. $NUGT traded at a range of 4.3% from peak to trough. Like I mentioned at the top of this post, it reached my stop loss at $20.6 and the rest of my remaining $NUGT positions were sold for a 6.4% gain.

The main catalysts that drove yesterday’s move in both Gold and Gold Miners are the inflation data and the FOMC meeting notes. Remember that inflation data was released this morning at 8:30am and the FOMC notes were released at 2pm, causing the change in direction of Gold.

Why did gold prices spike on inflation?

Gold has always acted as a natural hedge against inflation because its price is measured in USD and is variable; meaning as the US dollar weakens, the relative price of gold increases (It now takes more USD to buy the same amount of gold). So it’s safe to say that if inflation is trending upwards and expected inflation is high, USD will lose value as an asset used for capital preservation. In this case, gold becomes much more attractive to investors that want to hold an asset that’s safe and won’t depreciate in value due to the inflationary pressures.

Feds predicting no rate changes for rest of the year

Gold, and gold miners especially took a nose dive after the FOMC meeting notes were released. Main catalyst that drove the sell off was due to the improved outlook for the US economy given the recent string of positive economic data, which means the Fed will most likely not cut rates any time soon. The probability of them increasing rates is also back on the table, and increased yields means less people buying gold.

Yields slip as investors ponder economic future

Yields fell across the curve with the 10 yr falling around 1.35% to 2.469. This downward wave breaks the recent support around 2.48. The exact reason for this move is unclear at the moment, but in my opinion there’s now more possibility of a positive economic surprise than a negative one, and yields should consolidate in a range and start an upwards trend. I’ll explain my reasonings further below.

USD Remains Bearish in the short term

US Dollar Index continues to sell off towards its lower trendline, and it’s still trading in the ascending triangle. I would remain bearish unless it breaks the upper resistance at $12277.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s