The SPDR Gold Shares (NYSEARCA:GLD) have rallied sharply higher since December 29, 2011 when the highly popular ETF traded as low as $148.27 a share. This morning the GLD is trading lower by 0.67 cents to $159.85 a share. Short term traders can watch for intra-day support around the $159.60, and $159.00 levels. Traders can watch for quick intra-day bounces around these levels.
Market Looks Poised to Reverse Hard to Downside Within Days
The market has been in the process of a near 13 Fibonacci week corrective rally since the October 4th 2011 lows at 1074 on the SP 500. So far the highs reached on the initial rally of 218 points were in October at 1292. That has remained the high water mark as we have consolidated over the last many weeks.
Typically, the week before Christmas, stocks and commodities drift higher due to the lack of participants. Light volume favours higher prices, which is why stocks want to rise going into the holiday season.
The big money players, like hedge fund managers, are finished for the year. They’re sitting on the sidelines enjoying the holiday season while waiting for their year-end bonus checks.
Precious Metals, Equities and Crude Oil Long Term Outlook Part II
The markets are down again today. The selling is not massive but it is the third drop in a row. The SPDR S&P 500 ETF (NYSEARCA:SPY) is trading at $121.79, -1.32 (-1.07%). The big driver to the downside today is clearly commodities. Almost every single commodity is dumping sharply. Everything from oil to gold and silver.
Deflationary Pressures Are Everywhere This Morning
When the precious metals decline, there is a very good chance that deflation is taking hold. This morning, both gold and silver are declining sharply lower. The SPDR Gold Shares (NYSEARCA:GLD) are trading lower by $4.49 to $161.96 a share. This is a decline of 2.60 percent for the GLD and this signals deflation in the stock market.
The market collapsed lower today as the new ECB chief Mario Draghi told markets he would not save the day. Expectations had been high for the ECB to come in and buy bonds from Italy and other stressed nations. It was clear in the short term, the ECB will not do this. The markets fell on this news with the Dow Jones Industrial Average dropping over 100 points on the day.
This afternoon, the major stock market indexes have rallied once again after more news out of the European Union. This time around the European Union leaders have released a statement that they may run two separate rescue funds. Who really knows what this news actually means? If you are a trader then you should know that the European news caused the U.S. Dollar Index futures (DX Z1) to decline.
Understanding The Rally And The Next Stock Market Move
Stock markets continue to rejoice on hopes and dreams of a path through the European mess. Italian yields dropped sharply today after major austerity measures were pushed through. The SPDR S&P 500 ETF (NYSEARCA:SPY) is trading at $126.80, +1.94 (+1.55%). In addition to optimism about Europe, economic data in the United States continues to be strong.
At this time, gold and the major stock market indexes are synonymous. When gold rallies higher the major stock market indexes seem to rally higher as well. Gold is signaling to investors that inflation is being created by the central banks. As we all know by now, when there is inflation the major stock market indexes will react and trade higher.
Every trader should watch gold extremely closely. Gold has signaled inflation better than any indicator in the world for the past ten years. When gold trades higher it tells traders that the stock markets are being inflated by a major institution or perhaps even a central bank. The opposite is true when gold declines as it will indicate that the stock market is deflating.
There is a very simply rule that traders should follow, when gold is trading higher it is signaling an inflating stock market. The opposite is true when gold is trading lower, it is signaling a deflating stock market. Gold and the major stock indexes are synonymous at this time and will trade in the same direction.
Every trader in the world follows gold and they should. When gold rallies, or bounces higher it will usually signal that inflation is being pumped into the stock market. The opposite is true when gold declines and sells off, it will signal that the stock market indexes are deflating and will trade lower.