Pro Perspectives 7/24/20

July 24, 2020

We end the week with the clock ticking on the July 31st expiration of the unemployment subsidy (the extra $600/week). 

And we end the week a significant step closer to action against China, whether it be a U.S. led coalition that puts China in the economic penalty box, or something bigger (military action).  

With this, gold is getting power from two sources. It is already well on the path to new record highs, on the bet that trillions of dollars of new money floating around the world will inflate the price of all assets.  And now, global capital is moving to gold as a flight to relative safety, as the probability of war with China has risen.  Gold crossed $1,900 today…

How high can it go?  Let’s revisit an updated chart on gold from my March 5 note.  

This is a classic C-wave (from Elliott Wave theory) here in gold.  This technical pattern projects a move up to $2,700

Next, not surprisingly, with an imminent risk to the economy (the expiration of the unemployment subsidy), and 2) the rising risk of geopolitical instability, stocks end the week in a technically vulnerable position

As you can see, the S&P sits on this very important trendline (as I write), representing the recovery from the March lows. This doesn’t look good, and this line has already given way in the Nasdaq.  

With the above in mind, next week will likely come with less than comforting price action in markets.  But, even though Congress is very unlikely to come to an agreement on a new stimulus package (not next week, not before the election), I suspect/hope the White House will find a way to extend the unemployment benefits, in the current form (faults and all). That should keep the economic recovery intact.