STOCK MARKET WATCH - Thursday, 5 January 2012

[Ghost Dog]

9. Gold presages “clearing of the decks” in the stock market ?

... Gold has responded to the onset of Euro-QE backed by a Fed that has made dollars available to foreign banks at lower rates by moving decisively below its 200-day moving average. This begs the question: As we move into the New Year, what might the action of gold be telling us about the state of QE in January 2012?

As we see in Chart 1, the SPDR Gold Shares ETF GLD, a proxy for gold itself, has broken sharply below its 200-day moving average. The last time gold dropped below its 200-day moving average was August 2008, just before the big stock market break that began in September of 2008 and extended into October/November of that year. In that case, gold was signaling the start of a liquidity crunch that led to severe forced selling in stocks going into the third quarter of 2008. This was followed by another wave of selling that took the market to its ultimate lows in March of 2009. In the end it all added up to a rather harrowing experience for investors. Could gold be signaling another period like this for stocks just ahead?...

... If gold presages another down leg in stocks, we would tend to look at this as a necessary “clearing of the decks” in the stock market given that we are now in the third year of a bull rally that began off the March 2009 market lows... If the irresistible force of mass fiat money-printing, the essence of QE, runs into what finally becomes the immovable object in a debt mountain that has grown well beyond reasonable proportions, then stocks could see some problems in the early part of 2012. They may very well be in a position to stage such a new down leg in a continuing market correction that may have been initiated with the sharp break off the market’s peak in late July/early August of 2011.

... We believe a new down leg for the market that began in the early part of 2012 could result in a bottom perhaps some time in spring or summer. This would in turn potentially coincide with the market beginning to discount the potential for positive government economic policies and initiatives that could be catalyzed by the November 2012 election. On the margin, the potential for serious economic policy change could provide enough of an “inflection point” to spark a strong market rally phase at some point in the mid- to latter parts of next year...

/... http://www.marketwatch.com/story/what-is-gold-telling-us-2012-01-03?reflink=seekingalpha

Sounds about right to me... What will second-term Obamanomics be like?



Note that SPX around 1250, where it is today, was at the edge of the precipitous fall to around 800 in 2008.

Similar is observed (& with quite clear 'head and shoulders' at present) in emerging markets: