| Focus on the Price
By John Jagerson, CFA, CMT Friday, January 18, 2019 1. Crude oil completes inverted head-and-shoulders 2. S&P 500 spikes, pulls back and closes strong 3. Gold drops after prolonged run How can we improve the new Chart Advisor? Tell us at chartadvisor@investopedia.com Major Moves Stock prices are not the only things rising on Wall Street. The price of oil, which has been rebounding in tandem with the stock market, broke up to its highest level in weeks and confirmed a bullish reversal pattern in the process.
West Texas Intermediate (WTI) crude oil completed a bullish inverted head-and-shoulders pattern today by breaking through the slightly down-trending resistance level at $52 that made up the neckline of the reversal pattern.
The head of the pattern formed on Christmas Eve and the day after Christmas when oil hit its lowest price point – $42.36 per barrel – since mid-June 2018. The left shoulder formed in late-November and early-December, while the right shoulder formed during the past week.
The pattern is slightly lopsided with the left shoulder a little larger than the right, but price patterns like this are rarely perfectly symmetrical.
Seeing oil prices rise provides bullish fundamental confirmation that the global economy is still strong. Oil prices go up when supply decreases or demand increases, or both. While there has been some pressure applied to oil supply lately by Saudi Arabia's announcement it would be pumping less oil, the United States has largely offset that threat by continuing to extract ever-larger amounts from shale.
Instead of being supply driven, it looks like the latest breakout is demand driven. When the economy is growing, demand for oil tends to increase.
This increase in the price of oil is not only providing a positive economic signal that is helping lift the stock market higher in general but also pushing Energy stocks specifically higher as well.  Source: finviz.com S&P 500 We've been watching resistance at 2,630 for a few weeks now, and the S&P 500 has finally broken up through this level.
The S&P 500 surged higher another 1.32% today to close at 2,670.71. This move puts the index well within the trading range it consolidated in during most of Q3 2018.
Seeing the index break back into this trading range before the long Martin Luther King, Jr. holiday weekend is a bullish sign for the U.S. stock market. Oftentimes before a long weekend, traders will take profits off the table, pushing stock prices lower.
The fact that we are seeing traders buying, instead of selling, heading into this weekend tells us they are not worried about potentially bearish news coming out during the weekend and potentially disrupting this bullish run.  Source: finviz.com
Risk Indicators I've talked a lot about various safe-haven assets – U.S. Treasuries, dividend-paying stocks, defensive stocks (like Utilities) and so on – traders tend to flock to when the market starts looking scary. One safe-haven asset I haven't spent much time on lately is gold.
Gold is often a difficult asset to fundamentally evaluate because it doesn't pay a dividend, it doesn't have a coupon rate attached to it and it is acutely sensitive to the changing mood on not only Wall Street but also around the world. Your average person on the street in India probably isn't keeping tabs on the value of Tesla (TSLA), but she is probably aware of the going rate for gold.
Using the SPDR Gold Trust ETF (GLD) as a proxy for gold prices, you can see that after a steady four-month decline, gold finally found a bottom on Auguts 16, 2018. The precious metal started to inch higher during the Fall months but really started to move higher in November and December as traders were fleeing the U.S. stock market.
This is precisely the type of price action you would expect to see when traders are becoming increasingly nervous.
Interestingly, when the U.S. stock market started to rebound in late-December and early-January, the price of gold didn't drop. Instead, it started to consolidate sideways below resistance at $122, a price level that had served as support during GLD's decline in May and June 2018.
The consolidation in the price of gold told us that traders who had moved money into the safe-haven weren't convinced the bullish move in the stock market was going to last. While the Moving-Average Convergence/Divergence (MACD) technical indicator had shown a bearish crossover, signaling a slowdown of bullish momentum, traders weren't ready to start selling. That all changed today.
The price of GLD dropped to its lowest close since December 28, finally confirming that trader sentiment among even formerly nervous traders is starting to shift and become more bullish.
Seeing this confirmation tells us traders are moving back from a "Risk Off" position – where they are more concerned about preserving capital than generating returns – to a "Risk On" position – where they are more willing to take on more risk in search of greater returns.  Bottom line: Intermarket Confirmation It's always good to see the stock market breaking up through resistance levels and establishing new highs. However, it's even better when you see that happening in conjunction with bullish moves in other asset classes.
Intermarket confirmation provides additional reassurance that you aren't just experiencing a fluke in a single market. You're seeing the movement across asset classes, which indicates the move is being driven by a strong underlying fundamental force. In this case, it's the stability of the global economy.
Watch for more good things ahead.
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Friday, January 18, 2019
Gold and Oil Confirm Bullish Wall Street Sentiment
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