The excitement engendered this past week by the new high in the Dow tends to be bordering on hilarious. As far as I am concerned, the new high in the Russel 2000 right at the beginning of the year was far more important. That breakout indicated to me that investors were prepared to focus their attention on a much wider scale. Buying in the top 30 stocks (Dow) – relative to other stocks - usually comes late in an advance, not early. This is often referred to as the Generals leading with investors buying what they perceive as having less risk. Goodness knows how the press will greet a new high in the SPX when it comes – probably miss that altogether.
But the most farcical comments were those that suggested we were now in a bull market – where have these people been for the past four years? To suggest that we are only now in a bull market when the Dow has already more than doubled and reaches a new high, is ridiculous.
The consolidation of the previous five to six weeks in the SPX looks as though it was a fourth wave – I have mentioned before how much I hate fourth waves – they always like to spring some sort of a trick. We have now had what looks like a quick little fifth wave up . I have a time line coming through today, Monday, which suggests I should have some sort of top within probably one trading day either side of that. The question really is - has Wave four finished? It could well turn into an ABC type pattern so that in fact last week’s rise was a B up and we are now due for a C down before we start the fifth wave. Looking quickly around the web, this alternative does not appear anywhere which increases the probabilities as fourth waves like to confuse as many people as possible. If this is the case, it would be bullish for the medium term as it means that once this C down is complete, we have further to go on the upside before completing the fifth wave and would fit very nicely with my ‘sell in May and go away”.
My medium term indicator on the Russell 2000 has still not given a sell. It has had a few heart rending moments on this long rise from the November low but has always been able to save its skin just in time. At the moment it has quite a bit of leeway but after last week, everything on this chart is moving pretty quickly so it will only have to turn over now to probably give a sell signal.
The bearish interpretation of recent action is that this past week marked a major high worldwide. I still don’t favour this option but as always we have to keep our minds and eyes open.
Google has had a huge run and is now being referred to as “the new Apple”!
Markets were very interesting in New York on Friday night. Indices all opened sharply higher, sold off and then ran up into the close. On the other hand, gold and silver, sold off sharply and then finished higher. I found this particularly interesting as it looks as though there was good buying for both metals at the lower levels. I mentioned last week that if silver could trade above $29.50 for cash for more than a day or so, it could be looking a bit encouraging. Moving on another week, my silver chart is now in what I call “the zone”. My use of the term is different from that used around the market but to me it is when the price is locked between two indicators and whichever way it goes out of this zone, should set the trend. By the close of the week, silver was trying to break topside from this boundary.
Also have a confluence of trendlines coming through in this area on gold. It was right on the medium term downtrend at the close on Friday (cash chart). In the background, precious metals are very oversold on short and long term indicators.
What really took my eye however, was that for the first time in absolutely ages in the precious metals complex, gold stocks actually performed better than the metal. The ratio of the ETF of gold stocks (GDX) and gold metal (GLD) was trying to break topside. The volume in the section was really high. This initial stirring could be the beginning of a change of sentiment so worth watching.
Australian golds were a bit slow to join in but there was some buying late in the week. Not many of our gold stocks are in uptrends but quite a few look as though they could be forming bottom patterns. Nothing like a run in gold stocks to bring the speccy money into the Australian market.
If gold does rally, can it take copper with it? Copper needs to find some support from somewhere and at this stage I would be happy to accept anything that stops it from breaking downside!!
In international markets – India hasn’t gone to a new high. I know they have problems but the fabulous performance early on in this index was one of the reasons I was bullish early in this cycle. Don’t really like such a good indicator to fall behind. Japan has been just amazing. After years of stagnation (topped in 1989), investors up there seem to be intent on catching up. A bit like the Australian market – we performed so badly for so long but on this rise in world markets, we have been one of the best.
So at the beginning of another week my main focus is going to be on analysing the big picture with gold right down to the little hopefuls. Let’s hope it can happen as it is always a lot of fun when gold stocks move....
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