Plans for S&P 500, Gold & Gold Miners

S&P 500

Per the simplified big picture daily, weekly and monthly charts of SPX first introduced 6 weeks ago in NFTRH 329, we have been managing potential downside targets of 2000 and 1900.

If SPX were to hit either of these targets it would not kill the bull market, especially if 2000 holds.  In that case it would be a normal, moderate and healthy correction.

But a drop to 1900 would go hand in hand with a deeper correction with the potential to end the bull if 1900 does not stop the decline.  There is no guarantee that even if the bull holds up the play would be another ‘V’ bottom as occurred in October.  Indeed, it is probably not likely because many might be expecting it.

If on the other hand the bull ends, a channel breakdown and lower low to October would be the signal on that.

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So SPX (along with Dow and other key indexes) made a lower high (double top) and non-confirmed the momentum stuff.  It appears a drop to 2000 at least, is in the cards.  That would take out the 50 day moving averages and the March low.  If that happens the MA 50’s (roughly 2065-2070) would be a target to short on any coming bounces.

Here is where patience is involved.  Those of us in ‘swing trade’ mode should not feel a need to trade every day.  That is a big mistake made by non-day traders… the impulse to get in the game every day.  In swing trade mode the idea is have cash and await low risk setups that can be held for several days to weeks.  Otherwise the default is cash.

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Bottom Line

The US stock market made a bearish reversal downward yesterday.  With its bearish weekly and monthly MACD’s, we have been watching for whether the bull could extend despite this or finally give in for a correction.  Now there is an opportunity for downside follow through with the key parameters noted above to decide whether a modest correction, an intermediate correction or possibly even, a bear market ensues.

I am going to play it according to the signals it gives.  Next target is 2000, with bounces to be managed for potential shorting opportunities.

Gold & Silver

With what is happening in stock markets, the ratio of gold to these markets is bouncing but still in an intermediate downtrend.  If that changes, an important gold stock fundamental will be in place.  As of yesterday’s close, long-term/short-term yield spreads remained depressed, which is not positive for gold.  Again, if the stock market gets a real disturbance, this could also begin to improve.  But… patience.

Gold is on the bounce it almost had to take, given the vastly improved CoT structure and the sentiment washout in early March.  Key levels are 1220 (MA 50), 1240 (MA 200) and 1260 (top of the lateral resistance zone).  As noted in NFTRH 335, only a rise above the January high (1307.80) makes a confirmed bear market bottom and likely new bull market.

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Silver held the 15.50 level we had noted as critical support and is now above the MA 50’s.

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Silver’s ratio to gold continues to dwell beneath the decision point at the SMA 200.

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Remember that not only is the daily SMA 200 in play, but that is also key long-term resistance by a weekly chart.  A successful break through this resistance would be very important; the kind of signal we wait interminably for.  It would have positive implications for precious metals and eventually, maybe even an ‘inflation trade’ (even if a counter-trend rebound).

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But it has not broken out yet, so we’ll await signals and go by them.

HUI

The current operating target on HUI is 180 (+/-).  It reversed back down with the market yesterday but with gold and silver up in pre-market 180 still looks very doable.  Beyond that, success above 180 (and the SMA 50, currently 185) loads 210 as the critical level that could decide between bull and continuing bear market.  A higher high at that level (January high) gives a strong marker for a potential new bull market (again, assuming macro fundamentals are falling in line at such time).

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Bottom Line

I do not like that this headline is the first thing I saw this morning:

U.S. stocks: Futures down sharply as Middle East tension adds to risk-averse mood

While stocks have been vulnerable to a correction and I don’t necessarily see this negative hype as bullish for stocks (as it so often turns out to be), it is usually not a positive for the gold sector beyond the flash point.  All we have do do is remember last summer’s Ukraine/Russia theatrics, gold touts pumping and the painful resolution that climaxed in November.

So if gold and silver are up on geopolitical tensions, this must be 100% tuned out.  It is not a fundamental consideration.

But with stock markets taking a correction and with yesterday’s economic data release showing a notable decline in Durable Goods Orders, we remain aware that the number one future fundamental underpinning to the gold sector is economic deceleration; not inflation, not China buying… economic deceleration.

So I am open to a new bull market but will not put the cart before the horse.