Gold Stocks: Take the Low Risk Road

The S&P 500 Index has hit numerous new highs in the past three years, but it has faltered in the last month. Note the log-scale graph below and the broken support lines from 2000 and 2007. The current support line, depending on where it is drawn, is on the verge of breaking.

S&P500_1995_July_2015

Further, Paul Mylcheerst says the modified monthly MACD has given a sell signal on the S&P. The same indicator gave sell signals close to the peaks in 2000 and 2007.

XAU_1995_2015

There is significant risk in the S&P 500 Index in spite of the fact that central banks and governments have a vested interest in levitating the stock and bond markets.

By contrast, the XAU, an index of gold stocks, has fallen to a 13 year low, and the monthly MACD indicator that gave the sell signal on the S&P has tentatively indicated a buy signal on the XAU.

xau_s&p_1995_2015

What about the ratios?

Consider the ratio of the XAU to the S&P 500 Index. The ratio is at the low end of the 20 year range and at a 14 year low because the XAU stocks have been crushed and the S&P has been levitated.

The S&P up and XAU down trends appear ready to reverse. The charts show extremes in prices and in the ratio.

The low risk trade is to sell S&P related stocks and to buy gold and silver stocks. Sell high and buy low!

CONCLUSIONS

  • The S&P 500 Index hit an all-time high in May 2015.
  • The XAU index of gold stocks hit a 13 year low this week – July 8.
  • The XAU to S&P ratio shows that gold stocks have been weak for several years and appear ready to reverse higher.
  • Gold prices have been crushed since August 2011 while paper bonds and stocks have been “strongly encouraged” by global central banks.
  • The MACD (modified by Paul Mylcheerst) has given a monthly sell signal on the S&P 500 Index (don’t discount this), a buy signal on the XAU, and is close to a monthly buy signal on gold.

Take the low risk road. At this time the S&P looks like a high risk path while the XAU looks like a low risk road.

 

Gary Christenson | The Deviant Investor

from http://ift.tt/1gsbwRk

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