Interactive Investor

Where next for gold and the FTSE 100?

Will the yellow metal melt or keep rising and will the FTSE rebound? Our chartist has an answer.

24th July 2020 08:39

Alistair Strang from Trends and Targets

Will the yellow metal melt or keep rising and will the FTSE rebound? Our chartist has an answer.

Gold and FTSE for Friday (FTSE:UKX) 

We last reviewed gold on 22 April at $1,702, casually mentioning $1,909 as a potential "top".

At time of writing, gold futures achieved $1,900 and we're starting to wonder if the metal shall melt or go higher?

We've some pretty firm reasons to expect hesitation around the $1,900 level but, hopefully sensibly, decided to try a "what if" scenario should $1,909 be exceeded.

In the event of $1,909 being left in the dust, further movement to an initial $1,923  is now expected with secondary, if bettered, calculating at a new top of $2,055.

To be blunt, should such a level appear, the market almost must experience some reversals, if only to gather sufficient oomph for further climbs in the future.

However, the visuals give ample reason to anticipate some reversals anytime now. Many folk trading gold will notice the prior all time high back in September 2011 when the price achieved $1,919.

This alone will introduce selling pressure as most chart packages will easily produce a 10-year picture, warning a prior high is doubtless making its presence felt.

In addition, there's the Bloomberg pundit effect where a bunch of market analysts are queuing up to predict the US markets are about to drop and thus, the only safe thing to do is buy gold.

Over the years, we've learned to distrust these folks opinions, usually expecting the exact opposite of what someone is being paid to say.

Perhaps this has been the reason for the immediate surge in gold prices but visually, there's ample reason to expect some gold volatility around the $1,900 dollar level.

The perceived "connect" between gold prices and stock market index movements has long been the source of losses for traders.

Reversals in gold now below $1,862 should produce some early warning for trouble, allowing reversals to an initial $1,843 with secondary, if broken, at a surprising $1,797.

Should $1,797 make an appearance, we'd hope for a proper rebound as the implications below are unpleasant at around $1,700.

Source: Trends and Targets      Past performance is not a guide to future performance

FTSE for FRIDAY (FTSE:UKX)

Reversals seemed pretty under control for the FTSE 100 and it looks like the index itself needs break below 6,200 to become a little bit troublesome.

Such an event risks triggering reversal to an unimpressive 6,169 points with secondary, if broken, calculating down at 6,130 points. The market closed Thursday at 6,211 points.

If triggered, the tightest stop appears to be 6,250 points but we suspect, if the movement triggers, falls are liable to be fairly sharp. As the red line suggests, some sort of rebound should be expected if 6,130 makes an appearance.
 
What happens if the FTSE makes it above 6,250 and the immediate 'blue' downtrend?

Above 6,250 should prove capable of some recovery to an initial 6,288 points with secondary, if exceeded, working out at a more impressive and confident 6,298 points.

As always, please remember we are discussing the FTSE and not after-hours futures.

Have a good weekend.

Source: Trends and Targets      Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

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