Today the market futures are gapping down in the morning before the open. Some are blaming this on the “debate” show on TV last night, but yesterday the DOW and S&P 500 fell and faded on the close after giving a sell signal earlier that day. I did an update about that sell signal just as it happened. It doesn’t mean the stock market is going to crash, but it does mean that the sluggish stock market environment we have seen since Labor Day did not end with Monday’s big up day and is likely to continue into October. Honestly I think the market is going trade sideways to down into the November election.
The good news is that the best stocks and sectors can still do well and on Tuesday gold, silver, and mining stocks all went up to firm up against the stock market. They are down this morning, but I believe we are actually about to head into another period in which the three of them will vastly outperform the stock market. This happened in the Fall of 2018, the Summer of 2019, and in the first half of this year until late July really.
An interesting pattern to this shows up when you take a look at the gold/S&P 500 relative strength ratio as triangles appear on the chart.
You can see how this ratio went straight up when the stock market crashed in March. Gold only fell about 10% when the S&P 500 fell over 35% and then gold went up first and faster than the stock market did too new 52-week highs. This caused the ratio above to jump straight up. The same thing happened in the fall of 2008 when the S&P 500 fell 20% and gold went up. Gold is simply now less volatile than the stock market.
The triangle pattern suggests that a period of gold outperforming the stock market is ahead of us. Meanwhile silver went up yesterday to cause its daily stochastics indicator to go above 20 to give a buy signal.
Now on a short-term basis I don’t think gold and silver are going straight up to their highs nonstop. Most likely they will go sideways a few weeks before starting another big rally. Both have been in a period of consolidation now since the end of July. One positive is that my favorite indicator for gold is the GDX/GLD ratio – it measures how mining stocks perform relative to gold and is still going sideways. It has not collapsed or begun a downtrend.
This tell us that this still a consolidation happening without big risks. Yes gold could go down to its 150-day moving average, but such a move doesn’t represent much downside risk from if it were to even happen. Gold, silver, and mining stocks have outperformed the stock market so far year to date and are in a position to do that in a big way again.
As for the stock market I discussed the sell signal it gave yesterday in a video update I posted on the site before the market close.
Remember the way to beat the market is buy the sectors and stocks that are beating the market. Now is the time to avoid stocks that have been lagging the market all summer as they are the ones now vulnerable on even minor stock market pullbacks. The market is not going straight up like it did in August so you have to be selective now in buys and keep an eye on the overall risks.
-Mike
