Weekly Market Outlook, Gold Update

For many reasons, for us it's difficult to be bullish right now. 

Bearish sentiment is near record lows while margin debt is near record highs.  Underwriting of junk debt is at an all-time high.

Another sign of incredible complacency - bad economic news is commonly considered good news because, so the prevailing "logic" goes, it means that "QE" programs will continue thus pumping equities even higher. 

We rhetorically ask if that should be the basis for rising markets.  In truth it often is - markets move on sentiment, logic and fundamentals be damned.  We've seen it over and over again from the dot-coms to real estate.  We've also seen how it ends each time.

Sentiment normally turns very rapidly, and a turn seems overdue so we're comfortable among the few bears that remain.

The DOW is +19% in 2013 and +138% since its 2009 low 4.5 years ago. The NASDAQ is +30% in 2013 and +209% since its 2009 low, while the S&P is +23% this year and +160% since its 2009 low.

Financials, arguably the key sector to overall market health, are breaking long-term uptrends. 

In the charts below we show, respectively, Bank Of America (BAC), Citigroup (C), Goldman Sachs (GS), J.P. Morgan Chase (JPM), and Wells Fargo (WFC):

What's described above is not at all an ideal technical backdrop for buying equities, so we're neutral and expecting a turn downward soon.

There's at least one more reason, the S&P500 in relation to its Bollinger Bands.  The chart below shows in red circles the times in the past decade that the S&P500 has closed a calendar month above its upper Bollinger Band.  What often happens next isn't bullish:

Article:  10 Ways To Wipe Out Your Retirement Savings.

Pay special attention to this fact excerpted from the article, while keeping in mind the non-stop assertions by many in the past couple of years that gold had not yet peaked because many speculators supposedly remained on the sidelines:

"In 2011, gold became the investment fad of choice. Once again, everyone that came to see me began asking about gold — just about the time it reached its peak price."

We've been adamant for over two years that indeed gold had already been bought en-masse, and on margin.  We also warned stridently that buying by central banks typically occurs at the peak, ergo central bank buying was not bullish as the gold touts were asserting but rather a bearish indicator.  It is now reported that the world's central banks have lost over $500 billion on their gold holdings, so far, yet continue to purchase more bullion. 

When the bottom in gold does occur, history suggests that central banks will be selling the last of their reserves thus the end of gold's ongoing bear market remains a long way off.  For now, the bounce that began in late June seems likely to continue.

We receive no remuneration or incentive directly or indirectly in any way, shape, or form for buying or selling the positions we do, or for mentioning any positions or publicly traded companies in this blog. If we hold existing positions we divulge the fact. This blog is merely a diary of some of our thoughts and trades and is in no way whatsoever to be considered investment advice of any kind. Always without fail consult a competent, experienced, and honest broker or investment advisor before making any investment or speculative decisions.

Please presume that we, she, he, I, it, them, they, us and you are purely fictional characters and that everything written in this blog is satire intended for comedic amusement only, and not to be taken seriously in any way. Just like "real" analyst proclamations. Thank you.


To be notified when this blog is updated : Please e-mail christianguinness@hotmail.com with "Subscribe to blog" in the subject line or click here to do so automatically if your computer is configured accordingly. We have never shared our mailing list with anyone, nor will we. Please note that we only send update notifications when a trade idea is diarized or updated materially, not if a blog entry only contains general commentary.