The Fed took the aggressive route and cut by 0.5% and… the markets failed to rally in response.
Buy the rumor, sell the fact. That’s what I wrote. It was the name of the game right now and that’s exactly what happened.
Initially, markets moved up, and just when it seemed that the implications were bullish (and I sent an intraday Gold Trading Alert #2 to prepare you for the change in outlook for gold – btw, I told you that if the outlook changed, so would the position) … Everything changed.
The markets tanked, and what used to be a breakout in the GDXJ became a clear, powerful shooting star candlestick that invalidated not only the breakout above the recent highs, but also above the August high. And it happened at a strong volume.
The implications of yesterday’s session in the GDXJ are, therefore, VERY bearish. Think about it – all the above happened after an event that just made the costs of borrowing smaller. This shows just how unsustainable the recent rally was.
Interestingly, during today’s session, miners made another attempt to move higher – they opened quite high, but they already declined during the first 30 minutes of trading. Please note the black candlestick – back in August it meant that the intraday top was in.
I previously wrote that the Fed’s cut on the markets doesn’t have to be bullish, and in fact given the buy-the-rumor-sell-the-fact nature of recent price moves, it was likely to be bearish. Despite the dovish surprise and a big cut, the gold price didn’t rally. It has only done so initially, and then it moved back down. The same is happening today, when the rest of the world (other trade exchanges where gold is trading) has the chance to react.
Yesterday’s invalidation is a sell signal, which nullifies the bullish implications of the confirmed breakout above the August highs (especially that analogous highs were just invalidated in case of the GDXJ).
Let’s not forget about the key event that took place on the currency front.
The USD Index just rallied from below 100, invalidating the breakdown. This only happened once in recent history – at the mid-2023 bottom. A rally to over 107 started at that time.
So, yes, it took a while for the USD Index to bottom, but it seems that we finally “got it”. Of course, there are certainties on any markets, and this is not one, but the USD/YEN chart makes it very likely.
Quoting my Sep. 17 Gold Trading Alert:
One more thing regarding the forex market. The USD/YEN currency pair – likely most important for the precious metals sector – moved lower once again, but reached a combination of support levels unheard of before (at least not recently).
That’s the combination of the late-2023 bottom and the 61.8% Fibonacci retracement level.
The former is a bit higher, and the breakdown below this level is not confirmed yet. In fact, at the moment of writing these words, the USD/YEN is back above this bottom once again – after touching the 61.8% Fibonacci retracement. This is a perfectly bullish setup, especially that the USD/YEN is after such a dramatic decline in the recent months.
Indeed, the USD/YEN rallied, and it even moved above its declining resistance line. This is not the first correction that we see, but given how powerful is the support that was just reached, it’s likely that this is not just a correction, but a start of another rally.
This is bullish for the USD Index and bearish for the precious metals sector.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief