Is A Large Decline In Markets Looming?
Tim Ord | May 05, 2021 10:09AM ET
Investors may be wondering if this is the start of a larger decline; according to the chart below the answer is no. The top window is the NYSE Summation index. Markets weaken first before a large decline begins. The weakness comes in the form of the advance/Decline which is the components of the Summation index above. Large declines can begin when the McClellan Summation index falls below ‘0” (noted with blue vertical lines). Current McClellan Summation index stands at +745 and in a relative strong position.
The chart below looks into the strength for GDX. The second window up from the bottom is the Up Down volume for GDX with a 50 day average. We shaded light pink when its below “0” and when price are usually declining. This indicator has been below “0” since last August. A bullish sign is present though as the Up Down Volume indicator has been rising since the March low. To get back to totally bullish this indicator needs to close and hold above “0”. Next window up is the Advance/Decline with a 50 day average and works the same was as the Up Down Volume indicator. It too has been rising since the March low and near the “0” level now. Seasonality wise May is not a good month for Gold and Gold stocks. What could be forming here is a Head and Shoulders bottom pattern where the Head is the March low. The next 30 days or so the Right Shoulder may form and when the Neckline of this potential Head and Shoulders bottom is exceeded is when the Up Down Volume and Advance/Decline indictors break and hold above “0”. Bigger picture is bullish, but there is a chance of a sideways pattern this month. Long GDX (10/9/20 at 40.78).
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