The Gold Dust Settles

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Dow “Sell In May” Chart

The US stock market has been resilient, but technical warning signs are appearing now.

Momentum and sentiment indicators suggest the market is peaking. The Dow has a head & shoulders top pattern in play, and volume patterns are turning negative.

The market is also moving into a more challenging time of the year. “Sell in May and go away” is a time-tested stock market rule of thumb. If the Dows breaks 14,400, I see a tumble, to about 13,500.

I have exited most of my positions in the general equity market over the past 2 months. Aggressive investors could buy put options for speculation, and conservative investors who are invested in the stock market should also buy them, for protection.

TLT (T-Bond Proxy) Consolidation Chart

Volume is bullish, and that suggests bond prices are consolidating. I think the market is getting ready to move towards $126. From that general price area, I see a decline to around $116.

The ongoing decline in US economic numbers may force the Fed to cut interest rates again, and that could help create the right shoulder of a bullish inverse head & shoulders pattern on TLT.

Gold has tended to rally when bonds rally, in this crisis. While a fall below $116 could send gold to about $1250, a major rally in the bond market could help gold climb back towards $1600.

Gold Sentiment Chart

The latest reading from Sentimentrader.com shows that the public in the West is more bearish now, than at the 2008 market lows.

In the meantime, Asians are lining up to buy. Which group of investors is correct?

Historically, the American public loses its appetite for gold near the bottom of a decline. I’m buying some gold now.

Gold $1600 Target Chart

Whether gold has bottomed or not, I expect the next rally to take it up towards the red trendline, on this chart. That would put it near $1600.

Note the position of the RSI oscillator. On this chart, it’s at a record low. The Stokes oscillator is also very bullish.

Asian value buyers tend to be attracted to this type of situation. They aren’t concerned about whether “the low is in” or not; they just believe gold offers good value, so they are strong buyers now.

Their approach has been pretty successful, for thousands of years!

 

 

 

 

 

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