Selling S&P500 | 23 December 2016

The forecast for the week 19 - 23 of December:

XAU/USD:

This week growth of gold is expected for the below reasons. Firstly, we can expect correction of US dollar as investors will be taking profit on long positions. USDX dollar basket index is being now traded at High since January 2003, and many investors may begin to take profit on the eve of the Christmas holidays. Secondly, I expect correction in the US stock market, which will also have a positive impact on gold. Yield of 10-years' US treasuries for 6 weeks in a row has been showing growth (from 1.83% to 2.6%) and in this regard, capital can flow from the stock market to the bond market. Finally, global expectations on inflation are gradually rising, which also plays into the hands of bulls on gold. In the UK, Eurozone and the USA November's inflation rose to a peak in the last two years. Of course, no excessively high inflation rate in the G-7 countries is not observed, but growth of CPI may also be a factor for the correction. Gold has been falling for six weeks in a row and technical correction is brewing. Trading recommendation: Buy 1133/1120 and take profit at 1143.

Brent:

This week we can expect a downward trend against growth of oil production in the United States. OPEC and non-OPEC countries have settled all the issues regarding cut of production and this factor is already included in quotes. At the same time, US oil companies increased their production capacity & ndash; production is already at High of the last six months. Baker Hughes once again reported about growth of number of drilling rigs in the United States by 12 units up to level 510. Low of this year was reached on May 13, when 318 rigs were recorded. Thus, for seven months, the number of drilling rigs had grown by 60.3%. I expect this trend to continue against high oil prices. Dynamics of oil prices and the number of rigs in the US have a direct correlation. In this refard, we can expect correction to $52.5/barrel in the next two weeks. Now I'm talking about correction, rather than a large-scale sales of oil. Trading recommendation: Sell at 56.00/58.00 and take profit at 53.50.

S&P500:

This week is not as eventful. We can highlight reports on durable goods orders and expenditure on private consumption in November, which will be published on Thursday 22 December. In my opinion, both figures will be released at the level of the median forecasts, since the volume of retail sales showed a slight increase: only 0.1%. I expect development of the downward trend on S&P500 against significant increase of yield of US treasuries. First, yield of 10-years' bonds has been rising for past six trading weeks, which is a strong bearish signal for S&P500. Correlation between yield of bonds and index of wide market shows is reverse and now there is a noticeable discrepancy that needs to be mitigated. Second, the current yield level of 10-years' bonds is 2.6% with inflation at 1.7%. Thus, US investors have real yield at 0.9% when investing in bonds - which investors from Great Britain, Germany, Japan and France cannot boast of. Since this is the last week before Christmas, we can expect an otflow of capital withdrawal to the bond market because of high real rate of yield. Trading recommendation: Sell at 2264/2285 and take profit at 2237.5.