As we have all just witnessed, August ended in a much more dramatic fashion than July. Not only has the trade war between the US and China escalated to new highs, the stock market has also seen wild swings, and precious metals have entered a bull run the likes of which has not been seen for many years.
As we noted in our market overview for August, the overarching theme in the markets right now is the US dollar and whether it will continue its bull run against many of the other major currencies. For now, however, it seems that it has taken a break, which is likely what has given rise to both gold and silver this past month.
But before that, let’s first take a look at what has happened in the stock market since last time:
Turmoil in stocks
Over in the US, the widely followed S&P 500 Index is once again showing signs of weakness. However, this is something that has happened repeatedly over the past year, and it has proven to be difficult to predict the moves of this index.
We pointed out a similar warning last month as well by referring to the divergence that had just occurred between the price and the Relative Strength Index (RSI). Pretty much immediately after we published that warning, the S&P fell sharply, and after only four trading days the index was down more than 6 percent.
As of this writing, the S&P 500 is still quite volatile, although the price has so far respected a trading range between 2,800 and 2,930. Given that range, a close of a daily candlestick below or above those levels would indicate that a further move in the same direction may follow.
What will eventually happen to the stock market in the US still remains to be seen, but we are now definitely at a very late stage of the bull market and there is reason for investors to be cautious.
Silver on fire
While the stock market is looking uncertain, one traditional safe haven asset is currently on a wild ride higher. Although it gets a lot less attention than gold, silver is definitely worth keeping an eye on for trend following traders in particular.
At current price levels, silver is now at its highest since April of 2017, when it traded above US$ 18 for a brief period. Back in July and August of 2016, however, silver even traded above $20 for a few weeks before falling back down.
The question this time is therefore whether the current price of around $18 is the top for now, or if we still have another 10% to go to reach $20 before resistance kicks in and the bears take over.
For now, however, upwards momentum is still strong in silver, and trend followers may want to take advantage of any pullback in price to get in on the trade.
Another pair that is currently trading at high levels – in fact the highest levels seen in more than 10 years – is the US dollar/Australian dollar pair.
Although the past few years have truly been a rough period for the Aussie dollar, the US dollar now finally appears to be taking at least a temporary breather on its way higher.
An interesting observation in the USD/AUD chart is the upwards trending trading range that the price has been in for the better part of the year, marked by the two black lines on the chart. As we can see, the price is now near the top of this range, which would suggest that a temporary top may be in for the US dollar.
So, although the overall trend for the greenback is still up, don’t be surprised if some swing traders who are trading on a medium to short-term time frame start positioning themselves for a sell-off in this pair.
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