Last week we saw the stock market and the price of gold take a hit. Since late July I really haven’t done much trading in the markets at all. I just haven’t been seeing any great opportunities to buy new stocks or sectors. The time to have bought was last year and after a huge run-up you really have to be patient to get a new great entry point or you just end up chasing things you probably shouldn’t be anymore.
Bitcoin people learned that the hard way as it rallied into the event of the government of El Salvador forcing business people in that country to accept Bitcoin whether they want to or not. When that became official news Bitcoin sold and dumped.
Traders tend to buy ahead of news and events and sell once they happen. When coming events are perceived to be bearish, though, they can sell (or short) ahead of the events and then buy or cover once they finally transpire. A coming Fed “taper” is probably is probably one of the things that have been holding gold prices down, for now.
From leaks to the WSJ by Fed officials, it looks like they are set to begin an incredibly slow taper in November, with an announcement about it this week when they issue their next FOMC policy statement on Weds.
That could be a coming event that brought some selling recently into the stock market too, but if you step back the internals of the market have been fading now since June. That was one of the big reasons I slowed down on trading in July. Take a look at this chart of the percentage of stocks above their 200-day moving average on the NYSE.
When this indicator goes down it means that more stocks are going down than up, and going down enough to fall below their 200-day moving averages. When this indicator goes down while the stock market goes up it is a negative divergence and a warning sign of a coming correction in the future.
However, in the past twenty years this indicator has gone down to 50 and then bounced one last time before a big correction has taken place.
That could easily be what happens again, and would mean that we are not on the verge of a real correction yet, but could see the start of one in a few months.
As for gold, it still remains trapped in its range with the $1825-$1830 area as resistance and $1700-1750 as support.
My guess is that after this coming Fed meeting happens we can see gold turn up before this week is over, but it may not break to the upside for good until the tapering really begins. I don’t consider that to be a major event, as the Fed is going to do it so slowly to try to lessen the impact and they are super dovish anyway. What is the difference between printing money to buy $40 billion of mortgages a month when rates are zero and the real estate market is red hot? It’s completely ridiculous for them to be buying these things.
I wouldn’t be shocked if the stock market turns up by week end too.
-Mike
