S&P 500 And Gold: Rally Continues

Above is the VIX which trades opposite of the SPDR® S&P 500 (NYSE:SPY) (S&P 500).  A bullish divergence occurs when the SPY makes a lower low and the VIX makes a higher low. This divergence is best shown in the bottom chart which is the SPY/VIX ratio.

In general, when the SPY is falling, so should the SPY/VIX ratio, and when there is a divergence, then a reversal in the market may be near.

In early and late March there was a divergence for a bottom.  So far on this decline we do not have a divergence suggesting that there is no worthwhile low forming here. We did have a downside target near 411 on the SPY, but so far, we don’t have a bullish setup.

The bigger trend is up, but short term consolidation is ongoing for now.  This potential consolidation could last through this week into next week.

Yesterday we said:

Today the 410 level was tested but the TRIN readings failed to reach panic levels which suggests no bottom forming here. Today’s volume did surpass the previous lows over the last couple of weeks and suggests at a minimum today’s low will be tested again. 

Decline may continue into next week. Worst case scenario is we’ll have a pull back to previous highs of March near 395 SPY.  Staying patient for now.  

We haven’t looked at this chart in a while which is the monthly gold

Gold has 8 and 16 year cycles which bottomed back in January 2016. The January 2016 bottom in gold marked a 50% retracement of the rally from the 2001 low to the 2011 high.  A 50% retracement of the previous rally can mark the half way point of the move up and would give a target near 2700 on gold.

Gold did find support near the previous high of 2011 which came at the 1800 level in March of this year. It appears the rally has started from the March low.

The bottom window is the XAU/gold ratio. It’s bullish when this ratio is rising and it turned up in early 2019. The rally has much further to go both in time and price and 2700 on gold should be an easy target.  Usually markets start out slow and end fast and that could happen with the gold market. Long VanEck Vectors Gold Miners ETF (NYSE:GDX) (10/9/20 at 40.78).

Disclaimer: Signals are provided as general information only and are not investment recommendations. You are responsible for your own investment decisions. Past performance does not guarantee future performance. Opinions are based on historical research and data believed reliable, there is no guarantee results will be profitable. Not responsible for errors or omissions. I may invest in the vehicles mentioned above.

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