Wednesday, May 9, 2012

Quo Vadis Gold?

DOW is down six days in a row. For last two days SPX is opening huge gap down and recovering most of the losses by the end of the day. The fight has been going on hold the 1360 line but ultimately it failed today. An important Demark trend line was barely missed by a whisker.

SPX is down five of the last six trading days and Demark exhaustion signal can come by next Tuesday, which can also be a short term bottom. I still think we are playing the tape of last year and if so, we will see a bounce going into the end of the month. So lots of bounce points are converging at one place, 1330-40, Demark 9 up and we are reaching the oversold territory as well in addition to some short term bullish divergences.

However the trend is down and if the market fails to hold 1330, the next support is at 200DMA which is at 1280.But I do not think we will test 200 DMA yet. I feel that the market will take out some bears 1st. On a weekly chart I think we are here:

But the important story of the day is that of precious metals. Gold broke the important $ 1600 level and as you can see from the weekly GLD chart “Mean Reversion” is in progress.  The weekly 50 periods MA is crossing over 20 periods MA.  Depending on how it plays out, gold may reach below $1400/oz soon. What a wonderful buying opportunity that would be for long term. I am glad that I have stayed away from gold after it reached $ 1900/oz. I wonder what those investors are doing now who invested at the top and were told to hold it for long term. Bad advice.

The commodity sector in general is going to get flattened out in the next few months and in particular Crude. This has nothing to do with market force or speculation but more of a political necessity. “O” cannot hope to win with high gas prices. Therefore before the QE starts and all risk assets start going up again, they want to make sure that the base prices for crude is low enough. Anyone who is short crude, can hope to ride the short till end of June or even middle of July.

Till now the correction has been more of a teaser. Safest thing will be to go out around 1330-35 level, take profits and then go back again at good opportunities. I think June will be more kind to bears than May have been so far.