Saturday, October 15, 2011

Some Details on Stocks and Gold

Click on Chart to Enlarge

See the notes on the chart above for gold. Looks to me like it should make another low before a longer rebound rally. The hourly chart has bearish divergence on gold and the retracement level is what I would expect to be the typical amount for this peak if a 5 wave move is occurring off the high in gold. My expected projection is on the chart above.

Click on Chart to Enlarge

After a minor bearish divergence on the hourly chart where I posted the recent new SDS trade, stocks have pushed higher, but with an even larger bearish divergence on the hourly chart. I expect the market to pause here for a number of reasons. Again, my target on this pullback, assuming we get one soon here, is 1155 on the SPX. After that I think it is likely that the rally pushes to new highs.

I have spent some time going over some detailed comparisons of our current market and the S&P 500 and gold prices at the end of the prior bull market (2007 top in stocks and 2008 top in gold). The move down off the May 2011 high in stocks to this point has been very similar to the move down off the Oct 2007 high. If the current rally is similar to the March-May 2008 rally then my projection from a recent post is still pretty close, though if it followed that template exactly it should only last 2 months. The general price levels I projected are still the same.

Additionally, behavior in gold has been similar in recent months to it 2008 top and turn down. It rose with stocks for most of the 2003-2007 bull market, but then as the bull market aged and debt/default issues started coming out, it continued to advance to new highs while stocks got hammered initially. Gold peaked 5 months after stocks peaked in Oct 2007, and before peaking gold gained 31% from its level when stocks peaked.

In the last several months (assuming gold has made a high) gold peaked a little over 4 months after stocks peaked. And it gained about 21% from its levels when stocks peaked. After the 2008 peak gold declined for 6 weeks prior to a 2.5 months rally to a lower high. That lower high was a great short sale point on gold and gold stocks. Watch for a similar play here. I believe ABX is setting up for a fantastic short sale in the coming months.

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