Gold Market Analysis

Above is our TRIN/SPY ratio which we showed Monday and has been to today’s trading, which is still showing a bearish divergence.  In general the TRIN/SPY ratio moves up when the SPY moves down and vice versa. Since January 23 the medium term (red line) of the TRIN/SPY ratio has been moving higher with the SPY moving higher and a warning sign that a possible pull back may be coming in the SPY.  A bullish development appeared at the November low where the SPY was moving lower and the TRIN/SPY ratio (red line) was also moving lower and suggested a rally was coming.  The daily VIX hitting the Lower Bollinger Band described on January 26 report also has issued a warning sign for the short term.   Sold SPX 12/29/11 at 1263.02 for gain of 1.75%; Long SPX on 12/20/11 at 1241.30.


We presented this scenario on Monday and may be still playing out.  Monday’s decline broke the previous highest volume low on higher volume and suggests the short term trend has turned down.  The pattern that may be forming short term is a small Head and Shoulders top where the Head is the January 26 high.  The January 25 rally had a surge in volume about double the day before and could be a minor “Buying Climax”.  The January 26 high occurred on lighter volume than closed below the January 25 high creating a bearish candlestick pattern called a “Dark Cloud cover”.    The pattern could be forming the Right Shoulder now that may take another day or two to complete.  If the market pushes higher and test the January 26 high (133.40) and volume falls at least 10% for the volume recorded on January 26 then the picture will remain short term bearish.  If volume is higher on the test then we would have to revaluate.   If and when there is a  break of the Neckline (around 130 range on SPY) should show a “Sign of Weakness” and gives a target near 127 level.  There is good support near 125 range and may be where the next low will form.  If the 125 range is going to be a low the TRIN/SPY ratio should produce a positive divergence in that region.  Staying flat for now.



We have showed this chart before, which is the monthly XAU/Gold ratio.  This chart dates back to 1992 and shows the longer term view for the XAU.  To refresh the two part buy signal; first the monthly RSI of the XAU/Gold ratio falls below 35 (last occurrence came in September 2011 with a reading of 29.95), second part of the signal comes when the monthly Slow Stochastics of the XAU/Gold ratio falls below 20 and a close above 20 triggers the buy signal.  The monthly Slow Stochastics of XAU/Gold ratio closed above 20 in October 2011 and triggered the buy signal and remains on a buy signal.  The best signals have come when the Monthly mid Bollinger band is trending sideways or rising and currently the mid Bollinger band is trending sideways.  When a buy signal is triggered by this method with the mid Bollinger band trending sideways or rising have lead to rally that lasted over a year.   When the monthly XAU/Gold ratio is low then Gold stocks are cheap compared to gold and currently this ratio is at the second lowest level (2008 was lowest) going back to 1992.  Gold likely will do well this year but gold stocks should outperform gold.

Long GDX 58.65 on 12/6/11.  Long SLV at 29.48 on 10/20/11.  Long GDXJ at 36.24 on 9/21/11.  Long GLD at 173.59 on 9/21/11. Long BRD at 1.67 on 8/3/11.  Long YNGFF .44 on 7/6/11.  Long EGI at 2.16, on 6/30/11.  Long GLD at 147.14 on 6/29/11; stop 170 hit = gain 15.5% .  Long KBX at 1.13 on 11/9/10.   Long LODE at 2.85 on 1/21/11. Long UEXCF at 2.07 on 1/5/11.   We will hold as our core position in AUQ, CDE and KGC because in the longer term view these issues will head much higher. Holding CDE (average long at 27.7. Long cryxf at 1.82 on 2/5/08. KGC long at 6.07.  Long AUQ average of 8.25.