Austrian Traders Journal

When looking at the macro-economy, I keep 6 charts up on my screen: Silver, Gold, S&P, Dow, 30-Year Treasuries, and Oil Services Index. Based on these charts, I evaluate the state of the market applying the same technical analysis I use for individual stocks. The latter two, bonds and oil, I use mainly as context. Its the former 4 that really clue me in to what to expect in the near-term. Normally, I expect gold and silver to behave similarly to one another, as do I expect the Dow and the S&P to behave similarly. As the price of any of the above approaches a technical price level, I then look to see if its counterpart is approaching a corresponding technical level.

Two weeks ago, I noted that gold and silver were both breaking trend-line resistance, making for a high probability breakout. Last Thursday, the S&P broke out to a new multi-year high, but the Dow is still trading below that key price level. And, indeed, trading the S&P intra-day or even overnight proved to be profitable, however it will be a far better play if and when the Dow also breaks out to a new multi-year high. It is worth watching both closely in the coming days and weeks to see what happens. If the Dow fails to breakout, that’s a likely indicator that the S&P’s breakout was actually a fake-out/breakout, but if the Dow does breakout, that’s a likely indicator that both the Dow and the S&P will move higher.

It’s a good bet that a lot of this will depend on news coming out of the Federal Reserve. Many Austrian forecasters go beyond simply analyzing economics and try to forecast what the Federal Reserve will do. No matter how often these forecasters are correct, it’s important to react to the price action rather than predict the news. It may very well be that the markets have come to the same conclusions as Austrian forecasters, and the news may be priced in. It’s even possible that markets over-estimated bullish news so that even if the news is positive for stock prices, the Dow and S&P can still fall if the news isn’t positive enough.

Meanwhile, gold and silver look to be approaching another key level. It would be nice if they have big gains tomorrow to get them at that level going into the FOMC. It’s less desirable to trade gold and silver if it’s mid-range. It’s less clear side of the trade you want to be on, and the moves to the next key level are only half the size. Oil services also appears to be at a key technical level and 30-year Treasuries looks to be trading sideways within a relatively narrow range consistent with a consolidation.