“It’s the market’s reaction to the news that matters, not the news itself.” Old trader truism
I don’t know about you, but I’m just fascinated by this whole Ukraine situation. It seems like things get worse and worse there day by day, week by week, and that we’re constantly on the verge of things blowing up, going totally out of control. Yet they don’t. So gold has mostly just moseyed lower and stock prices hug their all-time highs. What’s the message there?
Those (weak gold prices, strong stock prices) are not the signs of impending doom or East/West war. Now, the s#^$ can hit the fan at any time, in which case I take it all back! But it seems to me that what’s going on is that eastern and southern Ukraine is slowly being transferred into Russian ownership. Russia doesn’t want to ramp things up too much by an all-out invasion, and neither does the West want to raise the stakes dramatically by forcefully defending those parts of Ukraine. So Russia is sort of digesting eastern/southern Ukraine in slow motion, starfish-style, while the rest of the world makes noise but basically lets it happen. In the end, Ukraine’s a smaller country, Russia has regained some of its historic territory and much needed pride — and that’s about it. “Nothing to see here, folks — move on!” At least that might explain why stocks aren’t alarmed and gold remains lethargic.
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In my last commentary, I made the case for an upside breakout in stocks, based on the action of the A/D line, the PTI, and the lack of interest in selling off in the face of potentially bad news. Since then the Dow Industrials made new closing highs, but just marginally so, and then failed to follow through on the upside. So — still not a clear “full speed ahead!” from the Dow Theory by my reckoning. But nevertheless, look at what we’ve got. This looks like a “blast off!” chart to me, with the Industrials getting ready to explode on the upside.
Here’s the broad market, the 500 largest US corporations. If there’s a problem with this market, its chart shows no hint of that.
How about the developed world’s non-North American markets — any problems brewing on their horizons? Doesn’t seem to be, with EFA scoring and closing at new multi-year highs last week. The Global Dow Index? About the same picture.
Look — if you’re determined to find fault with this market, you can certainly do so. But you’d need to look at Russia’s market, or China’s market, or the NASDAQ, which I suggest are outliers more than representative of the Big Picture. We’ve got the Dow Theory saying Bull market, the A/D saying Bull market, the PTI saying Bull market, and international indices saying Bull market! So I’m going out on a limb again and saying the path of least resistance for stocks is UP.
I started following and charting gold prices back in 1974, and just spent a little time going over some of those old charts. With a few notable exceptions, April, May and June are months when gold tends to decline. As suggested many times in DTL over the years, there is a rather strong seasonal tendency for gold to record significant lows between June and August, and then move higher in the autumn and winter months. This also meshes with the idea of lower prices in between April and June.
We got a nice upside pop in precious metals prices last Friday, with another higher on Monday based on further ratcheting up of Ukraine’s woes, but until then the picture had been dismal indeed. Lower each of the other four days of last week, including marginally new yearly lows in silver last Thursday. Not good action. With stocks acting strong and the metals in their weakest season historically, it would take something really big to turn our two-day rally into the start of a true bull market. Civil war in Ukraine — now looking all but inevitable — may be cause for a or rally. But honestly, what is people’s incentive to rush into gold, just because some eastern European borders are redrawn? No — I’m afraid we’d have to see much more concern about a real East/West war to shake gold and the rest of the metals out of their otherwise lethargic mood. And even Putin doesn’t want to go toe to toe with the NATO in a true showdown.
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Back to the charts. Look familiar? Oh yeah — it’s almost a reverse image of the (bullish) stock charts shown earlier. Silver may stage a good rally off of its triple-bottom lows between and , but the pressure is on the downside, with the onus clearly on the bulls to make something happen.
Gold looks a little better than silver, but still nothing that merits a “bullish” rating. Again — mostly the evil twin, reverse image of those bullish stock charts.
If you’re looking for a bullish story in the metals, palladium is really the only game in town. We got new multi-year highs recently, and the market (represented here by palladium’s ETF, PALL) continues to act well, despite weakness with the rest of the metals.
OK — so overall the metals look bad, and are likely to look even worse for another month or two. After that, they may well present us with a good buying opportunity. But that remains to be seen. For now, you should have little else besides your long-term, "never sell 'em'" physical gold and perhaps silver holdings.
The above content was an excerpt of Richard Russell's Dow Theory Letters. To receive their daily updates and research, click here to subscribe.
