Wednesday, January 28, 2015

stocks, gold, silver, and oil

I am still bullish on world stock markets and in particular on the US market. The top chart shows the S&P 500 index which I think has a good shot at moving above the 2200 level during the next few months. But there is a possible problem visible in this chart.

You can see that the index has traded sideways for near two months now in a range between 1973 and 2093 (green rectangle). There have been many up and down swings within this range which itself stands at the top of a nearly six year old bull market. I think the S&P will move upward out of this range but if I am wrong and instead a downside breakout develops we would probably be seeing the start of a bear market. This extensive sideways action followed by a downside breakout would lead me to expect a drop of 20-30% from the bull market top (at least). The bearish implication of a downside breakout would be emphasized because it would coincide with a drop below the 200 day moving average (red line).

I want to emphasize that I think a bearish downside breakout from this trading range is unlikely. But in markets as in life it is always wise to think ahead so as to be mentally prepared for a dramatic change in conditions.

The middle two charts are daily charts of gold and silver. I remain long term bearish on both. But you can see that gold has crept above its 200 day moving average and that silver has rallied to its 200 day average after nearly reaching my long term $13 downside target. I think both markets have more to go on the upside with gold likely to hit 1350 and silver 19.50. Should the US stock market roll over and drop below S&P 1960 I think both gold and silver will move upward sharply in a "flight to quality" bull market. But as I said above I think this scenario is less likely that a continuation of the gold and silver bear markets.

The bottom chart is a monthly chart of West Texas crude oil futures. Today crude is trading near $44 after a precipitous drop during the past few months. The 2008 low was $33 and I think the market will try for that level before a sustained turn upward begins.


Carl Fredrik said...

I see divergences in both the monthly and quarterly time frames. I'd be careful.

Bob said...

Nope. No $1350 Gold or $19.50 Silver. You must not be looking at the charts that I am seeing. Have you seen the COMEX short positions on both? Yikes...