Downside Risks for Gold, Oil and Stocks

NEW YORK ( TheStreet) -- This week's volatility within the U.S. capital markets was influenced by generally weak economic data, the Supreme Court's decision on Obamacare, and now this morning the positive reaction to the bailout plans from the European Union.

Overnight we learned that eurozone leaders agreed to form a centralized supervisory body for eurozone banks by the end of 2012, which is a major step to creating a European banking union.

If this morning's market strength in gold, crude oil and stocks holds or extends into today's closes, it will effect my projections for the second half of 2012. In looking at the daily charts, however, the impact is within the recent trading ranges. The yield on the 10-year U.S. Treasury is between the low of the past two weeks at 1.555 and the 50-day simple moving average at 1.731.

Comex gold, which traded as low as $1,547.60 the troy ounce Thursday, rebounded to $1,574 overnight, still below my annual pivot at $1575.80. Nymex crude oil, which traded as low as $77.28 per barrel Thursday remains below its 200-week simple moving average at $80.51 Friday. The euro vs. the dollar rebounded to 1.2624 still below the two-week high at 1.2746.

Next week I will have new weekly, monthly, quarterly and semiannual value levels, pivots and risky levels for yields, commodities, currencies, the major equity averages and more than 7,000 stocks. Annual value levels, pivots and risky levels remain the same and will not change until the end of the year.

Remember my theory: Nine years of market closes factor in all possible bullish or bearish events for any given market or stock. My models are designed to evaluate the risk reward between value levels and risky levels with pivots in-between suggesting reversal-oriented trading.

In addition to my proprietary analytics, this is a time of the year to analyze the monthly charts to see if there are any important patterns or moving averages to help make second-half forecasts. Today, I will evaluate the monthly charts for: The yield on the 10-Year U.S. Treasury, Comex Gold, Nymex Crude Oil, the Euro vs. U.S. dollar, and the Dow Industrial Average.


Chart Courtesy of Thomson/Reuters

The monthly chart for the U.S. Treasury 10-year note shows that this yield has been declining since the beginning of the new millennium. I can't count the number of times I heard an economist or strategist say "avoid U.S. Treasuries," but obviously that's been a bad call.

We end June with the decline in the yield on the 10-Year overdone technically. The all-time low yield was set in June at 1.439. My annual value level is 2.502 with the 120-momth at 3.75. As the Federal Reserve allows "Operation Twist" to expire at year end, this yield should rise without setting another record low.


Chart Courtesy of Thomson/Reuters

The monthly chart for Comex Gold is negative and you can observe the popped bubble. The December 2011 low at $1,523.9 is the base of the bubble. My annual pivot at $1,575.8 was a strong magnet in June and will be around for the remainder of the year. My annual value level lags at $1,388.4. A break below the base of the bubble indicates risk to the annual value level. Any upside first should be well below that all-time high.


Chart Courtesy of Thomson/Reuters

The monthly chart for Nymex Crude Oil is negative and you can see the popped bubble from the August 8 high at $147.27 to the low of $33.20 set in January 2009. My semiannual value level at $79.83 was my end of June 2012 target. The 120-month simple moving is the first downside at $67.36. A new semiannual value level will be a lot lower than that.


Chart Courtesy of Thomson/Reuters

The monthly chart for the euro vs. the U.S. dollar is negative with the euro well below its 120-month simple moving average at 1.3005. The June 2010 low is 1.1880. The monthly chart shows significant downside risk for the euro.

When I analyze the major equity averages, I follow five important markets: the Dow Industrials, the S&P 500, the Nasdaq, the Dow Transports and the Russell 2000. My first neutral zone for the major equity averages is between my annual value level at 12,312 Dow Industrials and my annual risky level at 1363.2 S&P 500. A lower annual value level is 2698 on Nasdaq with annual risky level at 836.15 on the Russell 2000.

Today's closes are important vs. five-week and five-month modified moving averages at: 12,659 and 12,560 Dow Industrials, 1336.2 and 1323.9 S&P 500, 2886 and 2848 Nasdaq, 5085 and 5109 Dow Transports, and 775.85 and 783.55 Russell 2000. Closes above all of these moving averages is positive, straddling them as they did at Thursday's closes is neutral, and below all is negative.


Chart Courtesy of Thomson/Reuters

The monthly chart above avoids a long-term sell signal if Friday's close is above the five-month modified moving average at 12,560. My annual pivot remains at 12,312 with the October 2007 high at 14,198. The 120-month simple moving average at 10,798 is major support.

I look at the trading pattern of this monthly chart and I see a huge range from the October 2007 high at 14,198 down to the March 2009 low at 6470. Any move to the upside from here should stall below that all-time high, and I do not have a downside target as yet. As I projected last week, the downside is to around 10,500.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication, the author held no positions in any stocks mentioned.

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