S&P 500 And Gold: Rally Continues
Tim Ord | May 12, 2021 09:34AM ET
- SPX Monitoring purposes; Sold long 4/9/21 {{166|SPX} at 4128.80= gain 6.16%; Long SPX on 3/24/21 at 3889.14.
- Monitoring purposes GOLD: Long GDX on 10/9/20 at 40.78.
- Long Term SPX monitor purposes; sold long SPX on 1/15/21 at 3768.25= gain 10.80%; Long SPX on 10/26/20 at 3400.97.
Above is the VIX which trades opposite of the SPDR® S&P 500 (NYSE:SPY) (S&P 500). A bullish divergence occurs when the SPY makes a lower low and the VIX makes a higher low. This divergence is best shown in the bottom chart which is the SPY/VIX ratio.
In general, when the SPY is falling, so should the SPY/VIX ratio, and when there is a divergence, then a reversal in the market may be near.
In early and late March there was a divergence for a bottom. So far on this decline we do not have a divergence suggesting that there is no worthwhile low forming here. We did have a downside target near 411 on the SPY, but so far, we don’t have a bullish setup.
The bigger trend is up, but short term consolidation is ongoing for now. This potential consolidation could last through this week into next week.
Yesterday we said:
"The bottom window is the 3 day TRIN and third window up is the 2 day TRIN; when both are in bearish territory (like now) the market has a hard time going higher short term.
"The red vertical lines show the previous times when 2 and 3 day TRIN where in bearish territory. The blue dotted lines show when the 2 and 3 day TRIN were in bullish territory and in most cases the market was near a low.
"SPX did close at a new all time high on Friday but the TRIN readings where not in the fear levels needed to carry the market higher. The previous lows near 410 SPY is still possible.”
Today the 410 level was tested but the TRIN readings failed to reach panic levels which suggests no bottom forming here. Today’s volume did surpass the previous lows over the last couple of weeks and suggests at a minimum today’s low will be tested again.
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Decline may continue into next week. Worst case scenario is we'll have a pull back to previous highs of March near 395 SPY. Staying patient for now.
h2 Gold/h2We haven’t looked at this chart in a while which is the monthly gold.
Gold has 8 and 16 year cycles which bottomed back in January 2016. The January 2016 bottom in gold marked a 50% retracement of the rally from the 2001 low to the 2011 high. A 50% retracement of the previous rally can mark the half way point of the move up and would give a target near 2700 on gold.
Gold did find support near the previous high of 2011 which came at the 1800 level in March of this year. It appears the rally has started from the March low.
The bottom window is the XAU/gold ratio. It’s bullish when this ratio is rising and it turned up in early 2019. The rally has much further to go both in time and price and 2700 on gold should be an easy target. Usually markets start out slow and end fast and that could happen with the gold market. Long VanEck Vectors Gold Miners ETF (NYSE:GDX) (10/9/20 at 40.78).
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