I thought that it would be worth throwing a few thoughts out there given some random moves in asset classes over the past couple of sessions. Today we had a 5% move in the Shanghai Composite in a very short period of time, which many are attributing to an erroneous trade, but before that we have seen US markets fall after better than expected jobless data out of the US which has led many to believe the Fed will indeed begin tapering asset purchases soon. However, looking at precious metals this could be considered unlikely given the strong upward moves off lows seen in the past few weeks, Silver rose 5% in yesterday’s session. So with the Fed’s Jackson Hole meeting at the end of next week it is worth highlighting a couple of levels.

In the S&P, after making fresh new highs in the past couple of weeks we have consolidated after somewhat lackluster earnings growth, last nights’ break of 1675 has been seen by some as a precursor to a test of the 1625-1632 region. In the last week or so, many investors have been discussing the emergence of the Hildenburg Omen, a pattern which is based on the ratio of new highs and lows in the NYSE, without getting into too much detail it is worth noting that all major crashes and bear markets have been preceded by such a pattern with the caveat being there are false alerts, the bull trend for the market is still intact and we must remember that August is a notoriously tricky month, given the holiday season and light volumes.

Onto the precious metals, Gold has rallied around 17% off lows made in the past month or so, with Silver up around 22% over the same period, Q2 saw a massive outflow out of the major ETFs with the likes of Paulson and Soros significantly reducing their holdings. $1350 was a key level for Gold, and as of last night we broke through the level and we are now making higher lows so there is a strong argument that a bottom has been made for precious metals.

Both asset classes are going to be largely influenced by next weeks’ meeting, and given the relative light volumes it appears the uptick in volatility may well be a precursor to a bigger move, it is difficult to make a strong conviction call but the short term technical picture would suggest buying precious metals versus selling equities.

Philip Ball | Sales and Trading