Big Jump For Gold Commercials Suggests Current Rally May Not Go Far
Tim Ord | Feb 03, 2016 03:46AM ET
Monitoring purposes SPX: Covered SPX 2/2/16 at 1903.03 gain of 1.92%; Short SPX 1/29/16 at 1940.24.
Monitoring purposes GOLD: Neutral
Long Term Trend monitor purposes: Short SPX on 1/13/16 at 1890.28
Today’s sell off produced panic in the TRIN and Ticks readings suggesting a short term low is near by. The above chart shows the last time the Ticks closed below -500 and the TRIN closed above 1.75. Today’s TRIN closed at 2.30 and Ticks closed at -549. Bigger trend is still down but a short term bounce is possible here. Covered Short SPX on 2/2/16 at 1903.03 for gain of 1.92%; Short SPX on 1/29/16 at 1940.24.
Above is a longer term view for the market. The chart above is a variation of the chart we showed yesterday. This chart uses the 150 day EMA and the 75 day MA of the TRIN/SPDR S&P 500 (N:SPY) ratio and gives addition information. The important element of this ratio is the TRIN. In general when the TRIN is below one than that is usually in an up market and when above one, usually in a down market. By adding the SPY to the TRIN, this ratio gives insights to the market that are normally not seen by other indicators. This ratio rises when market is in a downtrend and falls when the market is in an uptrend. The last two major tops in the SPY (2000 and 2008) the TRIN/SPY ratio produced a divergence where the SPY produced a double top and the TRIN/SPY ratio made a higher low. Back to the present time; the SPY made a double top and the TRIN/SPY ratio produced a higher low and signaled a major divergence similar to what appeared at the 2000 and 2008 tops.
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The Gold Commercials came in at -59,833 as of 1/29/16; previous week -40,143. Commercial COT readings below 50K short are bullish for gold. The big jump above -50K short for Commercials suggests current rally may not go far. The middle window is the XAU/gold ratio which dates back to 1984. In bullish market for gold this ratio rises and shows that gold stocks are outperforming gold which is a bullish condition for both gold and gold stocks. This ratio had a bearish crossover in 2011 and remains on this bearish crossover. To change this bearish condition, the XAU/gold ratio would need to close above the blue downtrend line. As you can see the XAU/gold ratio is still below the blue downtrend line and remains in a bearish condition. The 7 and 14 period RSI is on the XAU/gold ratio and both are oversold suggests this ratio is stretched to the downside. The bottom window is the Slow Stochastics which is also on the XAU/gold ratio which is also pushed to extremes. Once the XAU/gold ratio closes above the blue downtrend line will be a bullish sign for gold and gold stocks. There is an eight year cycle low due later this year and should turn the trend back up. The XAU/gold ratio will help confirm the bullish trend when the trend turns back up.
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