foxex: Melt Up

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Tuesday, August 18, 2020 Headlines

1. Investors exit cash to speculate on stocks, not metals

2. Amazon's break into new territory

3. Investors expect good news from Nvidia

Market Moves

Stocks pushed higher still today as the U.S. Dollar broke recent lows in a significant decline. However, the greenback's drop did not translate into breakout prices on precious metals, suggesting that investors want to take on risk more than they want to flee to safety right now. This dynamic seems to be causing a melt upward in stock index performance. The S&P 500 index (SPX) notched its highest close since February 19. Perhaps some selling may keep stocks in a trading range over the next few days.

However, if the chart below is any indication, a pull back in prices will likely be met by new buyers. Even as the dollar index (DXY) fell, State Street's Gold index ETF (GLD) and iShares' Silver index ETF (SLV) both traded lower during today's session after a gap up at the open. If investors were worried about inflation or political instability, or even fundamental weakness, then these metal prices should be recording new highs today. The fact that they are not is the key point to observe here because it implies that investors could continue this behavior for a while longer.

[NEW READER SURVEY: We are running another two-week survey of our U.S.-based readers to gauge your sentiment and see what moves, if any, you have been making with your money given the market recovery, and current economic conditions. We'll share the results, as always, and we thank you for your time and participation.]

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Amazon's Break Into New Territory

Chart watchers need to look no further than the chart below for evidence of this price dynamic. Shares of Amazon (AMZN) have been at resistance around $3200 per share. Today's close put the stock squarely over that mark just at the same moment the dollar broke support. This action confirms the points being made here in the Chart Advisor newsletter over the past two editions: that consumer staples stocks and AMZN shares are closely tied to the movement of the dollar. If the dollar continues to trend lower, these and other stocks will likely continue to rise.

Why Hasn't Roku (ROKU) Broken Out?

Nvidia Earnings: What to Look For

Investors Expect Good News from Nvidia

Professional investors and analysts don't wait around for a company's earnings report in order to determine the value of its shares. Instead, they try to estimate that value all along the way. Speculators then push prices higher or lower in an unscripted price war over time. The price of Nvidia (NVDA) shares met its 1.61 Fibonacci extension target (green shaded area) based on the company's performance in the previous quarter.

With this context in mind, the chart below seems to imply an important observation: investors expect the earnings report to deliver good news tomorrow after the close. In fact the share price seems to reflect a best-case scenario for the earnings call, but there is no guaranteeing that this will play out.

Most of the best opportunities discovered through technical analysis usually occur after investors and traders react to something unexpected. If the earnings report were not as favorable as expected, the selloff would likely take shares back to the mean price (as depicted by the linear regression channel) or lower, setting up excellent trading opportunities to follow from that.

The Bottom Line

As stocks claimed slightly higher ground today, the U.S. dollar fell notably. Precious metals started higher, but closed lower by the end of the day. This dynamic implies that investors want to take on more risk and are doing so with stocks like Amazon or Nvidia.