Sell in May and go away | 27 Mei 2016

Forecast for 23 -27 May

XAU/USD:

The last three weeks of trading the precious metal has been under pressure. However, in my view, the downtrend is not over and it will gain momentum. Why? Firstly, the speakers on the last week - FOMC representatives (Sirs Dudley and Williams) mentioned that investors were too pessimistic about the last meeting of the monetary authorities. In anticipation of growth in the second quarter, FED is ready to raise the interest rate as early as on the June meeting. Positive April releases on manufacturing, average earnings, retail sales, cars sales and real estate clearly confirm the growth trend. Also, the monetary regulator expects drop of the unemployment rate, which usually contributes to increased inflation. So we can say: what dollar is good, is bad for gold. So, this week we should open Sell positions on growth of quotations to 1262/1275 and take profit at 1235.

Brent:

There are two reasons, why we should open Sell positions this week. Firstly, growth of the US currency usually puts the black gold under pressure, because its value is denominated in US dollars. The records of the last meeting of the US Federal Reserve signaled us that the interest rate may be raised on 15 June, which would strengthen US dollar. Secondly, on Wednesday 18 May the US Department of Energy disappointed investors by the weak data on crude oil reserves: inventories rose by 1.3 million barrels. It is impossible to ignore the report of the oilfield services company Baker Hughes: the number of drilling rigs in the United States and Canada had not changed over the last week. This stabilization suggests that companies are satisfied about current oil prices levels. Now bulls will lose this factor as the instrument to continue the uptrend. However, I do not exclude the possibility of a short-term growth of the price to High of the last week $50.13 per barrel, at which bears can place an order for sale. So, this week we should open Sell positions on growth of quotations to 49.30/50.80 and take profit at 47.00.

S&P500:

In my opinion, this week we should sell S&P500 on growth of quotations. The main driver for decline of the price- is the expectations that the Fed would raise the interest rate. The yield of the two-years' treasuries which reflects the expectations regarding FOMC monetary policy, the last week rose by 13 points at once - to the High of the past two months. These two tools have an inverse correlation, since tightening of the monetary policy negatively impacts on the financial performance of corporations and thus makes investing in the stock market less attractive. In this regard, we would refer to the well-known proverb of the exchange: "Sell in May and go away". So, this week we should open Sell positions on growth of quotations to 2057/2077 and take profit at 2021.