Wednesday, April 11, 2012

Today's price action & Gold

We had a nice oversold "pop" today but the S&P500 failed to close above its 50 day moving average:

(click on chart for larger image)

The blue line on the chart is the 50 day average and the S&P bumped it and fell back.  But notice the panel below the chart.  It's a price relative chart of the S&P 500 and the S&P 500 equal weighted index.  The small "blip" down (red arrow) shows that the smaller stocks in the index outperformed their higher capitalized counterparts.  This same action was manifest in the NASDAQ Composite versus the NASDAQ 100 Index and the Russell 2000 versus the S&P 500.  Now, one day a trend does not make but if this price action continues it will bode well for the market going forward.

It was pretty obvious that US stocks took off today on news that some official at the European Central Bank stated that if pressure on Spanish yields continued the ECB would step in to buy Spanish debt.  Never mind that the ECB has been in the bond market for over two years purchasing peripheral debt and that the central bank has no mandate to buy the volume of Spanish debt that it would have to if Spanish yields backed up over 7%!

Nevertheless, the market saw the comment in a bullish context which told me that Euro zone debt woes are still the "front and center" concern of this market.

Gold traded flat today but has been having a mini "stealth" rally:

This is an update of a chart I've posted on my blog before.  I've been monitoring this inverse head and shoulders formation for awhile and it appeared to be breaking down last week but we're starting to see strength in the yellow metal.  If we break through the neckline around the 38.2% Fibonacci retracement level the price target would be in the area of $2,075.00/$2,100.00.

Fundamentally, Gold possibly might be gaining strength on the possibility of more central bank liquidity (whether US or EU) being pumped into the system.  But this is directly at odds with what commodity prices are telling us.  Secondly, it might be gaining strength on fears surrounding the never ending threat of a European debt implosion.  But again, when those fears reared their ugly head last fall, gold dropped like an anvil thrown off the Empire State Building.  So, either the gold market is being prophetic about the inflationary impact of more central bank intervention or this is just a "dead cat" bounce for the metal.  I'll be more of a believer in this recent strength if we take out the 61.8% Fibonacci retracement level (on the chart) which is in the $1,677.00 area.