Selling Brent and S&P500
The falling Gold price should be used to open Buy positions. Firstly, outflow of capital from risky assets will contribute to increased demand in safe assets (primarily including gold and Japanese Yen). On Friday, September 9, the US stock market demonstrated massive sales: in one day, DJ30 and S&P500 lost 2.13% and 2.45%, which is the biggest daily collapse since June 24 (when results of the UK referendum were announced). At the end of last week, the fear index VIX rose by 46%. Investors much concerned and sell thier assets. A similar negative trend was also observed in the foreign exchange market for high-yield cross rates: for the past week, AUD/JPY and NZD/JPY had dipped by 1.66% and 0.90% respectively. Thus, investors are closing carry trade operations. Panic sales on the financial markets usually support the Gold price. Secondly, weak ISM for the manufacturing and services sectors in the US puts an end to raising discount rate on September 21 by the Fed's, which deprives US dollar of strong support and, in turn, will have a positive impact on gold as the yellow metal is denominated in US currency.Thus, this week we should open Buy positions on drop of quotations to 1325/1311 and take profit at 1339.
Despite the positive US report on crude oil reserves, the oil could not consolidate above the psychological level $50/barrel and closed the last trading week at 48.01. Will the uptrend go on or did we see a reversal of the trend? Now the second scenario is more probable. Though the Department of Energy reported about drop of the crude oil reserves by 14.5 million barrels (the highest level over the past 17 years) we should account the factor of unstable weather in the Gulf of Mexico, which broke production and transportation of raw materials. Now this factor is neutralized and this week we will see a more adequate performance. Then, the oilfield service company Baker Hughes once again reported about growth of number of US drilling rigs by 7 units to the level of 414 rigs. The US oil companies are increasing production capacity, which will oil under pressure. Finally, in early September the oil production in Russia reached a maximum value since 1991 year: 11 million barrels/day. Recall that in August the production was at the level of 10.71 million barrels/day. By this indicator, Russia is once again ranked first in the world, overtaking Saudi Arabia with its 10.69 million barrels/day (historical High). Thus, all conversations on freeze of oil production are still just conversations. In fact, the major market players are increasing their share, which is usually negative for the oil price. Thus, this week we should open Sell position on growth of quotations to 48.40/49.80 and take profit at 46.30.
September is usually a bad month for the US stock market, and this time the trend is going to be repeated. During the first decade, S&P500 lost 1.96% and taking into account panic sales of the last Friday, the downtrend will continue. What reasons have caused such a significant drop? The main reason is decline in corporate profits, which has been observed the last four quarters in a row. If the company's profit drops, it always has a negative impact on share prices. But why did the market grow then, have investors ignored this factor and suddenly remembered about it now? The following answer may be given to this question: in early September, weak ISM reports on business activity in the manufacturing and service sectors (both indicators are advance figures for GDP) made traders expect a more severe economic slowdown. Since many shares and the market as a whole were close to historic highs, the most reasonable tactics is to sell assets and get them cashed.Thus, this week we should open Sell position on growth of quotations to 2133/2154 and take profit at 2090.
Alexander GoryachevAnalyst of «FreshForex» company
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