September has been marked by several interesting events taking place in both the forex and stock market globally. In the US, the broad stock index S&P 500 broke through its all-time high in late August, and has continued up since, remaining above the psychologically important 2,900 level.
In our previous market overview, we noted that the rather narrow trading channel we drew on the chart has been respected remarkably well by the S&P. As we approach October, this is still true, as the market has become less volatile and the uptrend even smoother.
As we can see from the chart above, it is natural to conclude that the US stock market will continue higher, at least until the chart starts to show signs of price exhaustion. Until such time, traders who wish to play this market should go with the trend, and be careful with going short.
With that said, however, we can also see that a recent divergence has occurred between price and the RSI, marked by the short red lines in the top and bottom of the chart, respectively. A divergence like this could indicate that at least a short-term correction is about to happen.
Stable gold prices
We also took a closer look at the gold price last month and pointed out that the price seemed to have broken out of its previous downtrend. We further pointed out that if gold can break through the 1,250 level, it would be a bullish sign for medium-term swing traders.
What we have seen happen, however, is that the gold price has neither gone higher nor lower, but instead continued in a sideways consolidation between the 1,190 and 1,210 levels.
For now, it is difficult to say where gold might be headed next from a technical standpoint. The RSI is also in the “neutral” area, meaning that the current consolidation could continue until a new fundamental driver provides some direction for the gold price.
US dollar action
We recently talked about how traders can trade the US dollar as the trade war between the US and China looms. As we mentioned back then, the forex market is probably the most sensitive market to any kind of disruptions to global trade, particularly when it involves the US dollar.
With real dangers ahead for the US dollar, it is looking weaker both fundamentally and from a charting standpoint than we have seen for a while.
The US dollar chart now shows what many would say looks like a head-and-shoulders pattern, which is normally one of the most reliable chart patterns for bearish reversals. At the same time, the RSI is moving lower along with the price, in what may be the beginning of at least a medium-term downtrend.
Traders who are considering going long on various USD-related currency pairs should be aware of the bigger picture at play here, and for example refer to the US dollar index (DXY) chart for a general idea of where the dollar is headed against other major currencies before taking any trades.
Aussie dollar still weak
Although a turnaround in the US dollar may be in the making as we discussed above, the USD/AUD pair is still not showing any signs of a reversal. The upward trading channel that has lasted since January this year is still respected by the market, and until we see a clear break-down of this channel, our bias would still be long USD against the AUD.
As long as the price remains in the middle of the trading channel, and the RSI is in the “neutral” area, the risk:reward of this trade is not great, and traders should instead wait for better opportunities.
As the famous trader Jesse Livermore once said, “it was never my thinking that made the big money for me, it always was sitting.”