Best of the Week
Most Popular
1.SNP Offers Labour Deadly Death Embrace Alliance, Holding England to Ransom, Destroy UK From Within - Nadeem_Walayat
2.Gold And Silver – Most Widely Used Currency In Western World? Stupidity - Michael_Noonan
3.Election Forecast 2015 - Coalition Economic Recovery vs Labour Collapse - Nadeem_Walayat
4.Election Forecast 2015 - Debates Boost Labour Into Opinion Polls Seats Lead - Nadeem_Walayat
5.Why are Interest Rates So Low? Ben Bernanke, Confused as Ever, Starts His Own Blog to Prove It - Mike_Shedlock
6.Leaders Debate Election 2015 - Natalie Bennett Green Party Convincing Anti-Austerity More Debt Argument - Nadeem_Walayat
7.Labour Economic Collapse vs Coalition Recovery - UK Election Forecast 2015 - Video - Nadeem_Walayat
8.China’s Stock Market Mania; How High can Red-chips Fly? - Gary_Dorsch
9.Gold and Misery, Strange Bedfellows - 31st Mar 15 - Dan_Norcini
10.Ed Miliband Debate Election 2015 Analysis - Labour Spending, Debt and Economic Collapse - Nadeem_Walayat
Last 5 days
Labour Bribes Voters With Housing Market Stamp Duty Cut and Rent Controls - 27th Apr 15
Stock Market SPX Index at Resistance - 27th Apr 15
Society's Leaders Have Been Digging a Bottomless Economic Pit - 27th Apr 15
Impending Stock Market Top - Trend Forecast Summer 2015 - 26th Apr 15
Desperate Stock Market Bubble Thinking Takes Hold on Wall Street - 26th Apr 15
Stock Market Back into The Bear Suits - 26th Apr 15
One Stock Market Where You Haven't Missed the Bull Market Boom Yet - 26th Apr 15
Migrant Crisis - Europe Has Completely Lost It - 26th Apr 15
What Obama's First-Ever Energy Review Missed - 26th Apr 15
Sheffield Hallam Election Battle 2015, School Places Crisis, Can Nick Clegg Win? - 26th Apr 15
Stocks Bull Market Looks to Resume - 25th Apr 15
Gold And Silver - The U.S. Is A Corporation. Precious Metals Stand In The Way - 25th Apr 15
When the Nuclear Money Option Fails - 25th Apr 15
The War on Cash Special Report - 25th Apr 15
China Economic Slowdown Story - Why “Didi Dache” Is a Phrase You Need to Know - 25th Apr 15
The Trans-Pacific Partnership and the Death of the Republic - 25th Apr 15
Stock Splitting Caused the Stock Market Crash - 25th Apr 15
China Stock Market Parabolic Mania’s Global Risk - 24th Apr 15
What Will Happen to You When the U.S. Dollar Collapses? - 24th Apr 15
Why 2 of U.S. Dollar's Recent Bottoms Have 1 Thing In Common - 24th Apr 15
UK Economy Debt Timebomb Will Explode After Election - 24th Apr 15
Are Gold Stocks the Cheapest Ever? - 24th Apr 15
God, the Stock Market and Pascal's Wager - 24th Apr 15
Greedy Insurers Are in for a Nasty Surprise – Positioning You for Big Profits - 24th Apr 15
Four Things Missing From Obama’s First-Ever Energy Review - 24th Apr 15
How to Grow a Regenerative Medicine Industry - 23rd Apr 15
Stocks and Bonds Seven Year of Negative Returns; Fraudulent Promises - 23rd Apr 15
The Existential Danger To The Euro Is Elections - 23rd Apr 15
Stock Market No Clear Direction As Investors React To Quarterly Earnings Releases - 23rd Apr 15
Is China The Next United States? - 23rd Apr 15
U.S. Oil Glut: How High Can It Go? - 23rd Apr 15
Distorted Financial System Expect Deflation, Inflation And Hyperinflation - 23rd Apr 15
What McDonald’s Corporate Earnings Report Is Really Telling You - 23rd Apr 15
Gold Price Forecast to Become Priceless - 23rd Apr 15
FDIC Plots a Bank Heist Involving YOUR Accounts - 23rd Apr 15
$GOLD Price Year 2007 Again - 23rd Apr 15
Stocks Bubble - The Spread between Stock Prices and GDP is Blowing Out - 23rd Apr 15
Ukraine War - When Did We All Become Murderers? - 23rd Apr 15
Libya Crisis - EU Leaders Are Indicted for Nazi-Style Crimes against Humanity - 22nd Apr 15
Why Alternative Energy Isn’t Taking It on the Chin Despite Low Oil Prices - 22nd Apr 15
Bill Gross - German 10-Year Bunds Short of a Life Time - 22nd Apr 15
How to Profit from the Drop in the Oil Price - 22nd Apr 15
The U.S. Dollar's Move Is More Dangerous than You Think - 22nd Apr 15
Apple Watch Means Apple Will Become Worlds First $1 Trillion Stock - 22nd Apr 15
Half a Stocks Bubble Off Dead Center - 22nd Apr 15
They Said Go to College - Learning to become Debt Slaves - 22nd Apr 15
Best Cash ISA 2015/16, Instant and Fixed Savings Interest Rates, New Flexible Withdrawal / Deposit Rule - 22nd Apr 15
Unsound Banking: Why Most of the World's Banks Are Headed for Collapse - 21st Apr 15
Bitcoin Recent Low Price Volatility Might Be Deceptive - 21st Apr 15
Currency Wars Back As Russia Buys Gold - One Million Ounces in March Alone - 21st Apr 15
The Greece 'Grexit' Issue and the Problem of Free Trade - 21st Apr 15
Why Europe Lets People Drown - 21st Apr 15
Wealth Destruction for the 99.9 Percent - 21st Apr 15
SNP Publish England's Suicide Note as Pollsters Still Forecast Labour-SNP Election Disaster - 21st Apr 15
Characteristics of Extremely Over-Indebted Economies - 21st Apr 15
Trader Education Week -- a Free Event to Help You Learn to Spot Trading Opportunities - 21st Apr 15
Gold & Silver Alert: Silver Stocks’ Signal - 20th Apr 15
Now is the Time to Buy Resource Stocks, Especially Gold Equities - 20th Apr 15
DJ Transportation & Utility Averages Suggest Stocks Bull Market Is Over - 20th Apr 15
Crude Oil Price Bull Market Hope - 20th Apr 15
Stock Market Bears Get Slaughtered Despite Greece Counting Down to Grexit Financial Armageddon - 20th Apr 15
The Rise of the Paper Machines - 20th Apr 15
Gold and Silver Inflection Point - 20th Apr 15
SP500: A Butcher's Stock Market (Chop Chop Chop) - 20th Apr 15
Are Stock Market Bears Slowly Gaining Control? - 20th Apr 15
Sugar Commodity Price Bear Rally - 19th Apr 15
Avoid the Spread of the Stock Market "China Syndrome" - 19th Apr 15
Stock Market Going Nowhere Fast - 19th Apr 15
An Easy Way to Profit From the Two Biggest Trends in the Stock Market - 19th Apr 15
No Scripture Is Divine, Authentic and Beyond the Creation of the Human Brain - 19th Apr 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The War on Cash!

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