Best of the Week
Most Popular
1.Election Forecast 2015 - Opinion Polls Trending Towards Conservative Outright Win - Nadeem_Walayat
2.UK Solar Eclipse - End Time Sign, Judgement Day, Doomsday! - Nadeem_Walayat
3.Gold And Silver - When Will Precious Metals Rally? Not In 2015 - Michael_Noonan
4.Preparing for the Next Stocks Bear Market - Forecast 2015-2016 - Gary_Savage
5.Is a Stock Market Crash Imminent? - David Eifrig
6.Gold Price Slumps as US Dollar Soars, What's Next? - Nadeem_Walayat
7.US Dollar Forex Pairs and Gold Chartology - Rambus_Chartology
8.Election Forecast 2015: The Day Labour Lost the General Election - Nadeem_Walayat
9.The ECB Should End QE Next Month - EconMatters
10.Silver Price Poised to Surge - Zeal_LLC
Last 5 days
Is the U.S. Headed for a Recession? - 1st Apr 15
Did The Fed Just Admit to Deep Uncertainty About Our Financial Security In Retirement? - 1st Apr 15
Gold Price Flat In Quarter In Dollars But 5% Higher In Pounds - 1st Apr 15
Financial Market Extremes: Expect Consequences - 1st Apr 15
Iceland Ponders Radical Banking Plan to Eliminate Fractional Reserve Lending - 1st Apr 15
How Traded Options Can Power a 300%-Plus Gain on Twitter - 1st Apr 15
You Can’t Afford Not to Invest in This Latest Yesla Technology - 1st Apr 15
Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - 1st Apr 15
Bitcoin Price Down Move Still in the Cards - 31st Mar 15
No Body Understands Debt - Living in a Free-Lunch World - 31st Mar 15
Will Gold Win Out Against the US Dollar? - 31st Mar 15
Middle East Balance of Power Matures - 31st Mar 15
Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - 31st Mar 15
Gold and Misery, Strange Bedfellows - 31st Mar 15
Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - 31st Mar 15
Don’t Celebrate the U.S. Housing Market Recovery Yet - 30th Mar 15
A Middle East Nuclear Holocaust - 30th Mar 15
Peak Gold? – Goldman Sachs Research Warns of Peak Gold Production - 30th Mar 15
With Yemen Burning, Arab Spring II Is Underway - 30th Mar 15
No FED Bets From the BIS - 30th Mar 15
Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - 30th Mar 15
Economic Recovery, Geopolitics and Detergents - 30th Mar 15
U.S. Dollar, Commodities and the Gold Miners GDXJ ETF Analysis - 30th Mar 15
Stock Market Short-term Downtrend - 30th Mar 15
David Cameron Election 2015 Debate Facts Check - Employment, Immigration, Debt & Deficit - 29th Mar 15
Stock Market About Ready to Crash! - 29th Mar 15
Reflections in a Golden Eye - Gold Market Rejection, Repatriation and Redemption - 28th Mar 15
Stock Market Inflection Point - 28th Mar 15
Gold And Silver - What Moved Price? Bab el-Mandeb And Uranus Square Pluto. What?! - 28th Mar 15
Stock Market Investment Parachutes; Do You Have Yours? - 28th Mar 15
Peak Gold Misunderstanding, is Gold About to Run Out? - 28th Mar 15
Deflation Watch: Key U.S. Economic Measures Turn South - 27th Mar 15
The Hard-Earned Truth About Recreational Real Estate - 27th Mar 15
Bitcoin Price Still in Important Territory - 27th Mar 15
Stocks Bear Market Conditions - Index Market Range Warning - 27th Mar 15
BEA Leaves Q4 2014 U.S. GDP Growth Essentially Unchanged at 2.22% - 27th Mar 15
Brazil Economy Victim of Vulgar Keynesianism - 27th Mar 15
Gold to Fuel Silver Price Upleg - 27th Mar 15
Gold and Silver Stocks Will Rise Again! - 27th Mar 15
Risk of ‘World War’ between NATO and Russia on Ukraine as Yemen Bombed - 27th Mar 15
FOMC Minutes Turned The Gold Tide - 27th Mar 15
Sheffield Hallam Election Battle 2015 - Lib Dems Go to War Whilst Labour Sleeps - 27th Mar 15
Gold Effect On Mining & Shale Wasteland - 27th Mar 15
How Stock Investors Should Play the 2016 Presidential Race - 26th Mar 15
MidEast Energy Alert: Why the Crisis in Yemen Could Get Ugly Very Fast - 26th Mar 15
Stock Market Downward Spiral of Dumbness - 26th Mar 15
The Monetary Approach Reigns Supreme - 26th Mar 15
Stock Market Large Gap Down, Despite the Algos' Push Back - 26th Mar 15
Crude Oil Surges, Gold price Spikes as Middle East Tensions Escalate - 26th Mar 15
The U.S. Housing Market Recovery Is Fabricated Optimism - 26th Mar 15
Why Yemen Is The Next Saudi-Iranian Battleground - 26th Mar 15
The Crude Oil Price Crash and China Economic Slow Down - 26th Mar 15
Global Financial Markets Are More Distorted Than Ever Before - 26th Mar 15
One More Stock Market Rally and Then a Huge Drop Expected - 26th Mar 15
Danger Will Robinson - Stock Market Crash Warning - 25th Mar 15
Learn the Basics of Corrective Elliott Waves - 25th Mar 15
Why CNBC Is Hazardous to Your Financial Health! - 25th Mar 15
Will Your Retirement Accounts Survive The Coming Tax Code "Revolution"? - 25th Mar 15
US Dollar - Americas Phoenix - 25th Mar 15
California’s Epic Drought: Only One Year of Water Left! - 25th Mar 15
What’s Wrong With Silver? - 25th Mar 15
SPX Futures Appear Weak. WTIC and Gold May Be at Max Retracement - 25th Mar 15
We’re at the Dawn of a “New Energy Age” - 25th Mar 15
A Very Weak U.S. Economic Recovery - 25th Mar 15
Zero UK CPI Inflation Rate Prompts Deflation Danger Propaganda For Fresh Money Printing - 25th Mar 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

US Economy Still on Life Support

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