Yesterday I did a post about the possibility that gold and the mining stocks are now entering the type of low volatility rally that we saw the S&P 500 do a few times in the past ten years, such as in 2013 and 2017 in which it would just go up almost endlessly without any real pullback at all. Back in 2013 I called this a “stairway to heaven” move for stock market investors as they could literally buy anything and make money.
People would look for a big pullback to buy into that never came while others would end up buying breakouts to new highs in expectation of a huge rally only to be disappointed that the move didn’t come fast enough as the market was moving slowly with low volatility.
In such a market though the 50-day moving average becomes a very useful support level to use as a buy point. Last week I suggested to use it as a buy point for gold sometime in September as it appeared that gold might pause for a few weeks.
This strategy will still work at some point for a buy point as the chart suggests.
At some point no matter what gold does today or even this week it should hit its 50-day moving average in the next 6-8 weeks. The 50-day is the blue line on the above chart.
Interestingly enough when it comes to the S&P 500 the 50-day moving average is also now acting as resistance instead of support.
As you can see the 50-day moving average for the S&P 500 is now at 2946 and coincides with the high of last week. The S&P 500 is now trading in a narrow range with that level acting as resistance and 2800 acting a support, which is the point of its 200-day moving average. Last year it also acted as support from May to September. The big market drop started with a decline through the 50-day moving average.
Last Friday the market dumped pretty bad, but yesterday it bounced. People are getting emotional about these swings, but the real important move is going to come when it either closes above the 50-day or below the 200-day moving average, which is now acting as support.
Right now though I am closely watching another indicator that I talked about in a private post in the Power Investor group when it comes to the stock market to identify a true buy point.
If you are not in the group just join by going here:
http://wallstreetwindow.com/join-power-investor/
-Mike
