November ended up being an extremely volatile month for world markets with Donald Trump’s election win sparking major moves in both directions for many markets. I did correctly call that Donald Trump would win the election and that it would be a Brexit level surprise to the market. I did not expect that the surprise would end so quickly however. The reaction which took 2-3 weeks to digest in the UK was over in 2-3 hours in the US and then traders decided to take Donald Trump’s win as a positive for business.
Because of this, my results for the month were pretty good with two successes plus one short term success/long term miss. The Mexican Peso was crushed by the Trump win as I expected sending USDMXN well above 20.00. It traded as high as 21.40 just below my 21.75 forecast and has been near 20.60 lately well above the 18.75 it was at a month ago. Sugar fell during the month as I expected finishing close to my 19.50 forecast price. The Dow was more mixed for me. I had been bearish on the Dow and it did get to within 40 points of my 17,435 downside target in the election night selloff but then exploded to the upside and finished the month near an all-time high.
December is historically a positive month of the year for stocks. The big post-election rally in November, however, has left stocks overbought and either in need of a pause to rest or vulnerable to a correction. Trading through the US Thanksgiving holiday period suggests that overall, US traders may be content to see markets digest recent gains through a sideways consolidation at a higher level than a big downward correction.
There are a number of events that could move some markets this month. The OPEC meeting on November 30th appears set to end in success which could set a positive tone for energy prices through the month. There could be some additional volatility around a meeting with non-OPEC producers apparently being planned for .
The Italian referendum and Austrian Presidential election on December 4th could indicate the level of dissatisfaction with the establishment in Europe heading into next year’s French and German elections. The Fed is pretty much guaranteed to raise interest rates this month, traders may now focus on how many rate hikes are likely on 2017. Finally, although the US election is considered to be over, any risk of change to the outcome could have a big impact on sentiment. While the electoral college vote on December 19th and the Green Party’s motions for recounts in three key states are currently considered to be a formality and a nuisance at the moment, any surprises could upset the apple cart.
Weather could play a role in commodity markets particularly those sensitive to winter conditions. So far the autumn has been relatively warm but surprise changes in temperature could still influence the markets.
The US dollar and the Fed meeting could impact trading across currency markets. Since the election the US dollar has gone from pricing in two interest rate hikes in 2017 to four or five. Last year the US Dollar peaked in early December before the Fed raised rates and it remains to be seen if markets have moved too far too quickly once again. If the dollar does stay up, it could negatively impact the near term outlook for corporate earnings. Something needs to give between US stocks and the US Dollar at some point (I suspect a US Dollar correction which would support stocks at a higher level) but it’s unclear when and could be punted off to sometime in the new year.
Three interesting markets for November 2016
- Index NASDAQ 100 Current Price 4,847 1 month forecast 5,100
The NASDAQ 100 has been trailing other US indices since the election remaining stuck in a trading range between 4,700 and 4,900 while the Dow Industrials, S&P 500, NASDAQ Composite and Russell 2000 have all broken out to new all-time highs. I think traders have been taking profits out of the companies in this index to fund purchases elsewhere and that this index has room for a catch up rally that could take it up through 5,000. 5,100 is based on a measured move from the current trading range.
2. Commodity Gold Current Price $1,171 1 month forecast $1,222
Gold tumbled dramatically following the US election along with other defensive havens like JPY and bonds. Gold has become oversold, however, and looks due for a bounce. It appears to be completing a double bottom and a common 62% retracement of its previous uptrend near $1,170 and appears poised for a bounce. A correction in the overbought US Dollar, increased political risk in Europe or anticipation of higher inflation could spark a rebound in gold. My forecast is based on the midpoint between a Fibonacci cluster near $1.210 and a resistance level that has emerged near $1,235.
3. Currency USDCAD Current Price $1.3425 1 month forecast $1.3150
In recent months the Canadian Dollar has been weakening due to a combination of volatility and uncertainty in the oil price, concern about a weak economy and the possibility that the Bank of Canada may be forced to cut interest rates in December while the Fed raises rates. The prospects for an OPEC agreement has sparked a big oil rally while strong Canadian Q3 GDP reduces the chance of a Canadian rate cut indicating potential for the underperforming Loonie to play catch up this month.
Commodity Outlook December 2016
November was a highly volatile month for commodity prices that saw a lot of big moves and trend reversals across many sectors. The US election result sparked a big rally in the US Dollar which provided a general headwind to commodity prices, particularly precious metals. On the other hand, speculation that a new Trump administration could focus more on infrastructure and manufacturing to get the economy going sparked a big rally in copper and other base metals plus building materials like lumber. Other commodity markets were mixed. While coffee, sugar and some grains like oats tumbled, other markets like soybeans, rice and orange juice were better supported.
It was a wild month for energy market trading. Crude oil has been all over a $40-50 range ahead of the big OPEC meeting (I write this on November 29th before the decision). A warm November put pressure on Natural Gas although it did spike on the few cold days of the month and could be active through December.
My forecasts for the month were very successful. Lumber did rally as expected and did reach my forecast price but slipped back a bit just before the end of the month. Crude oil spent most of the month trading around my $45.00 mid-channel forecast price and was trading pretty much right on top of it in the hours heading toward the OPEC announcement.
For December I think we could see a correction in the US Dollar and in the performance of metals that could see precious outperform base this month as both sides appear to have moved too far too fast. Energy markets are likely to continue to be impacted by the fallout from the OPEC decision and weather conditions. Grains and softs could see mixed performance, it’s also possible that some of the markets which I noted above had sold off in November could stabilize in December.
Best Commodity - Platinum. Current price $916 one-month forecast $1,000
Historically the top performing commodity in December has been cotton which has been trending upward on the charts but I think Platinum has more upside. Platinum has become really depressed after its November plunge but it showing signs of a turnaround. Technically a positive RSI divergence has appeared indicating slowing downward momentum while a bear trap reversal just under $900 suggests it has likely bottomed out for now with a rebound possible. Back above $900, a bounce back up toward the $1,000 round number doesn't look out of the question particularly if a US Dollar correction takes the pressure off precious metals..
Worst Commodity - Copper. Current Price $2.59 one-month forecast $2.37
Copper has been one of the biggest beneficiaries of post-election Trump trading but now looks vulnerable to a correction. While the US looks promising, actual demand from more fiscal spending may not materialize for a year by the time budgets are developed and approved while in the meantime, other demand centres for Copper like China continue to struggle. Copper has completed a double top faltering just short of $2.75 and dropping back toward $2.60. Meanwhile an overbought the RSI indicator is signalling the potential for a significant correction. Copper has already completed a 23% retracement of its recent rally but a common 50%-62% retracement appears possible while could take it back into the $2.33-$2.41 area.