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S&P Technicals Give Concern - Point to Gold Upside

14 Aug 2018 - Archive

The S&P 500 peaked on September 18.  Since then it has been in a downward trendoverallshedding 2.2% in value.

 

Of concern, the downward trend presents the question of when will the S&P 500 regain strength.

 

In looking at the technical indicators, the signal is not positive.

 

The S&P 500 is floating below its 20-day and 50-day moving average, and until Friday, below its 100-day moving average.  Furthering the downward trend, the relative strength index is not providing a buy signal, at least not at the level it has in many of the past cycles.  

 

Given the weakness in the S&P 500, it comes as no surprise that gold looks to be a profitable alternative.

 

The following looks at the performance of the S&P 500 and the performance of the price of gold (London PM).

 

The current widening - S&P 500 has been strong, while gold has been through some weakness - look a good deal like the widening in 2007.

 

If history is any guide, the widening difference is due for a reversion, meaning the S&P 500is due for deterioration and gold is due for price appreciation.

 

How much?

 

As a guide, averaging the difference between the two would put gold at a target price of about 1,500 (25% upside risk), with the S&P 500 dropping to around 1,600 (19% downside risk).

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