August 26, 2012
Weekly Market Outlook
By Geoff Bysshe
The August 20th Wall Street Journal had on its front page a declaration that “This rally gets no respect”. Now what’s a market to do when the truth about its persona is so publically exposed?
Make a new high for the year of course, and that’s exactly what the big cap indexes did.
As always, however, the truth is in the details. The Dow reached a new closing high for the year, but it was not able to hit an intraday high. The S&P 500 and Nasdaq 100 easily cleared their hurdles on both a closing and intraday basis, but neither stuck around for long to enjoy the view, and…
Unfortunately, only the Nasdaq 100 (QQQ) returned to close on at the new yearly highs on a weekly closing basis. If you’re wondering what the QQQ’s see at new highs, that the other indexes don’t, you need only to look at the weekly candle charts. You’ll find that even the QQQ’s are not what to do next.
The QQQ’s weekly candle chart pattern is the nicest “doji” this index has seen in years. For all you non-candle chart readers the doji pattern is commonly interpreted as a market in a condition of indecision!
With so much focused on the equities gasping for air at their new heights, you may have missed where the sellers of stocks at new highs were quickly putting their new cash to work.
Now I don’t want to suggest that everyone taking profits in stocks is necessarily running to buy metals, but as you’ll see from the chart below, over the last several years there has been an easy way to see when gold has been a very attractive alternative to stocks.
In the chart you’ll find a weekly chart of gold on the top, the S&P 500 in the middle, and the ration of gold price divided by the S&P on the bottom. The smooth blue line in the bottom chart is a 20 week moving average of this Gold/S&P Ration. I’ve added dashed vertical lines at the points where the ratio crossed its moving average. Even a cursory look reveals that when this ratio of the two instruments’ trends above its 20 period moving average, gold tends to be a better place to be if you like to play from the long side.
Needless to say (I hope), this week’s powerful move up in gold is much more interesting than just "a big move up in gold" when viewed this way. And given the eerily similar but opposite consolidation patterns in the price charts of each instrument, I think it’s safe to say that the markets may be at an even bigger inflection point than many traders expect.
In this week’s video I’ll show you what to look for in the equities and metals based on this perspective and more.
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