Best of the Week
Most Popular
1.UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - Nadeem_Walayat
2.UK General Election 2015 Seats Forecast - Who Will Win? - - Nadeem_Walayat
3.Gold Price Downtrend Looks Set to Continue - Clive_Maund
4.Commodity Prices Set To Plunge Below 2008 Lows - Austin_Galt
5.New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - GoldCore
6.Gold and Silver Stocks or General Stock Market Indices? - Rambus_Chartology
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.UK House Prices Trend 2015 and the May General Election - Nadeem_Walayat
9.12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - GoldCore
10.Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - Mike_Shedlock
Last 5 days
Gold Price and Mining Stocks Decline Together - 3rd Mar 15
Financial Slaughter - The Silence of the Lambs - 3rd Mar 15
Bondholders “Bailed In” In Austria – New Banking Crisis? - 3rd Mar 15
How to Profit from the Coming Oil Price Crunch - 3rd Mar 15
Is Japan Zimbabwe? Could Japan go Hyperinflation? - 3rd Mar 15
Bill Gross Says Fed May Raise Rates 25 Basis Points in June - 3rd Mar 15
The Secret Behind My Hedge Fund Trade on U.S. Housing Market - 3rd Mar 15
BLS CPI Lie - How's That Dsflation Working Out for You? - 3rd Mar 15
Tesla Bonfire of the Money Printers’ Vanities - 3rd Mar 15
Gold Demand in UK, Europe and U.S. – Reuters Interview GoldCore - 2nd Mar 15
Watch the Skies... for Investor Profits - 2nd Mar 15
How Investors Can Identify the Best Small-Cap Stocks - 2nd Mar 15
Gold and Silver - What If the Precious Metal Stocks Bulls are Back - 2nd Mar 15
Students Getting a PhD in Subprime Debt - U.S. Debt Breaking Bad Part 3 - 2nd Mar 15
The Stock Market is in The Process of Major Top! - 2nd Mar 15
Stock Market Weakening Trend - 2nd Mar 15
Gold Price Glimmer of Hope - 1st Mar 15
Stock Markets Are Riding High on Thin Air - 1st Mar 15
Varoufakis vs. the Troika - Showdown in Athens - 1st Mar 15
Subprime Rising - U.S. Debt Breaking Bad Part 2 - 1st Mar 15
Gold CoT Improving, But ... - 1st Mar 15
UK General Election 2015 Seats Forecast - Who Will Win? - 28th Feb 15
UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - 28th Feb 15
Stocks Bull Market Continues - 28th Feb 15
U.S. Debt Breaking Bad - 28th Feb 15
NATO Frankenstein - When Centralization Scales Beyond Our Control - 28th Feb 15
Gold And Silver Insanity Prevails; Precious Metals Without Direction - 28th Feb 15
Fed Raising U.S. Interest Rates - Shovelin’ Schmitt Against the Tide - 28th Feb 15
Don't Let This Stock Market Myth Cost You Your Gains - 28th Feb 15
Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - 28th Feb 15
Stock Market Indexes Creeping Towards the Edge - 28th Feb 15
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

All Markets Alerts - Stocks, Bonds, Dollar, Gold, Silver and Crude Oil

Stock-Markets / Financial Markets 2013 Feb 04, 2013 - 03:48 PM GMT

By: Clive_Maund

Stock-Markets

Never before have we seen major indicators in such a conflicting state. Taken in isolation many important indicators are giving clear signals, but they are in conflict with one another to the extent that the outlook is a clouded mess. When such situations arise it usually leads to choppy, treacherous market conditions until such time as the indicators align in a more unified manner.

There are lies, damned lies and statistics, which is why we generally use charts in preference to the latter, but as you will see as you read through this report, using charts is not always a piece of cake either, especially at a time like this. While you will soon understand what I mean when I say that the indicators are conflicting, that certainly does not mean that we can't come to some useful conclusions about probabilities and how to handle these markets going forward.


Let's start by looking at the 5-year chart for gold. By itself the gold chart looks bullish. Gold has been in a trading range for 18 months now, and for most of this period it has been fluctuating between very clearly defined support at $1500 and very clearly defined resistance at $1800. What this means is that these support and resistance levels are VERY IMPORTANT, and a breakout above the resistance at $1800 or below the resistance at $1500 will signal the next major move. What about the danger of a false breakout? - well, there hasn't been one so far as this range has formed. The quite strong advance of last August - September looks like an impulse wave, a move in the direction of the primary trend, particularly as the subsequent reaction has the attributes of a Flag, a type of correction.

Gold 5-Year Chart

It is thus interesting to observe that gold's COT chart is at its most positive since last August right before the sizeable rally started, with the picture improving just last week as Commercials slashed their short positions.

Gold COT

So far, so good, right? Now we look at silver. Its 5-year chart is rather similar to that for gold, with the practical exception that the resistance at the top of the recent trading range is not so clearly defined. This chart too looks like it portends an upside breakout and higher prices.

Silver 5-Year Chart

But if silver looks set to break out upside and rally soon with gold, then why were the Commercials piling on the shorts last week so that they are now getting to a high level again? I have no explanation for this as the COTs suggest that gold is going to take off higher and silver break down, a situation which is clearly highly unlikely. Thus, what we can probably expect to see is more choppy action near-term until gold and silver COTs are better aligned.

Silver COT

If the outlook for gold and silver is taken to be positive, then why are Precious Metals stocks performing so terribly? - they should now be firming up if a breakout by gold and silver is looming but instead they have been plumbing new lows. The 5-year chart for the HUI index looks awful - we had earlier thought that the large Head-and-Shoulders top in this index was going to abort, but the latest weakness is increasing the risk that it is valid. If it is valid it has grave implications for the market as a whole as it targets the 100 - 150 area, and quite obviously this could only happen in circumstances of another 2008 style deflationary wash, in which case the now lofty broad market would turn tail and drop like a rock. In any event PM stocks have heavy overhanging supply to contend with in the 500 - 550 area on the HUI. PM sector holdings should be protected by either a general stop below 358 on the HUI index, or by hedging should this level be breached.

HUI Index 6-Year Chart

The gold shares bullish % index charts indicates that we are getting into normal buying territory for gold stocks, but we should remember that this indicator can actually drop to zero, and it did in 2008, and if that happened we could see terrible losses even from the current depressed levels.

Gold Stocks Bullish Percent Index 5-Year Chart

This is the point to look at how the dollar is shaping up and see how it fits into the mix. The 2-year dollar index chart continues to look bearish with a sizeable Head-and-Shoulders top looking like it completing. We now have a Right Shoulder to the pattern that is almost of equal duration to the Left Shoulder, so breakdown soon look likely. 78 is the key level to watch - if it breaks below this, the pattern targets the low 70's. COTs in recent weeks were strongly bullish for the dollar and in effect precluded a breakdown. They are still quite bullish, which means either that this pattern many abort, or that some more time is needed for the COT structure to change sufficiently to permit a downtrend to develop. Here's a contradiction we have to contend with - if the dollar looks like it is going to break down from its Head-and-Shoulders top, as it does, then this is clearly positive for gold and silver - so why do PM stocks look so sick? Also, if the dollar breaks down we would expect to see the broad market advance to accelerate noticeably, breaking it out to clear new all-time highs, probably leading to a parabolic ramp into the traditional "sell in May and go away" time. However, if the H&S top in the dollar aborts, which COTs suggest is very possible, then we may be the top in the broad market right now and various sentiment indicators indicate that a top is close at hand.

US Dollar Index 2-Year Chart

So how does the broad market S&P500 index chart look right now? On its 15-year chart we can see that after climbing a wall of worry for several years it is now arriving at very strong resistance approaching and at its 2000 and 2007 highs, and psychology is shifting with market participants heading in the direction of euphoria. A Triple Top reversal here would be a highly satisfactory technical development, although we must bear in mind that in real terms, stock values are way below what they were in 2000, once we factor in inflation during the intervening years. Also, regardless of the state of the economy, money spirited into existence by the Fed could drive markets considerably higher.

S&P500 Index 15-Year Chart

The VIX volatility index shows that complacency in the markets is at levels not seen since early 2007, ahead of the major crisis, and since nothing has been learned from that crisis, which has been simply papered over with bailouts, created money, credit and derivative expansion etc, the situation is potentially much more dangerous than that which existed in 2007 - 2008 with a housing market bubble having been trumped by a bond market bubble of immensely greater magnitude.

VIX 8-Year Chart

As the market has continued to rally Dumb Money has been getting itself worked up into a lather again, while Smart Money retreats to the shadows, as the following chart, courtesy of www.sentimentrder.com shows!

Smart Money versus Dumb Money

A study undertaken by www.sentimentrader.com shows that Investment Managers are at their most bullish since 2006, and for the 1st time ever are actually leveraging their long positions, and while these are generally intelligent people as a group they can fall victim to groupthink like anyone else, so this is viewed as a serious warning that a top is not far away.

Investment Managers Sentiment

Finally, oil has a good run in recent weeks, but the current intermediate uptrend is getting long in the tooth, and the chances of a reversal soon are growing, especially as it is now overbought as it approaches a resistance level.

Light Crude 3-Year Chart

The oil COT chart certainly suggests that we are at a good point for longs to start taking money off the table, which is alright for us as we got in at the start of this rally.

Oil COT

If, after reading this, you feel more confused than before you started, you have every right to be, but at least you have a clearer idea why you are confused. The current contradictions are expected to resolve themselves into a clearer technical picture with passing time.

Finally we are starting to see evidence that a breakdown and potentially violent plunge may be imminent in the US Treasury markets. With the shameless and relentless abuse heaped upon this market by the Fed and the US government, it is only surprising that it has held up as long as it has. Anyone holding these instruments at this time, which have very little potential for capital appreciation after their prolonged gains, yield next to nothing and carry huge risk of heavy capital loss, is intellectually bankrupt and a moron, although we must recognize that a lot of the buying of Treasuries is undertaken by those who will not pick up the tab for the loss personally if they lose value. Of all the sectors to short, this must be the one.

iShares Barclays 20+ Year Treasury Bond Fund

By Clive Maund
CliveMaund.com

For billing & subscription questions: subscriptions@clivemaund.com

© 2013 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

Clive Maund Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014