Posted on September 26, 2014
Are stocks finally showing signs of cracking? It was a volatile week in equities markets. The SP500 dropped from over the 2000 level to about 1964 today. Although it is too early to tell if the market has in fact topped, it seems that the market could potentially be starting the topping process. September and October tend to be volatile for the equities markets and thus far this time around is proving to be no exception.
Gold prices have thus far not had much of a reaction to the volatility in the stock market. The gold market has been trading sideways around the the $1220 area for the last several sessions. While the bears still have the clear technical advantage in gold, the market appears to be attempting to put in a near-term bottom around current levels. The gold market had become very oversold in recent weeks, and the notion of a bounce higher on short-covering and bargain hunting is certainly a good possibility.
The overall technical picture in gold remains quite bearish, however. The market is close to completing a large descending triangle that if completed could potentially take gold prices on another significant leg lower. The possibility of $1000 gold cannot be ruled out in the coming months. It will be interesting to see if the market can avoid such a scenario by holding at current levels, although at this point it seems that it would take something significant for gold to start a meaningful rally.
Headline risk seems to have come down quite a bit in recent weeks. With ongoing airstrikes in Syria, however, the notion of increasing risk aversion remains a possibility. Investors have been able to essentially shrug off almost all geopolitical risk to this point. While we feel that could change, it may take a significant escalation in matters for investors to start getting really anxious.
Q2 GDP data will be released today along with consumer sentiment. These reports could potentially ease some investor angst following yesterday’s large sell-off. Overall,the data being seen has remained fairly positive as the economy appears to be continuing on its road to recovery. Perhaps the bull market in stocks has finally run its course, however. Should more investors begin to flee equities, then we could potentially see more buying interest come back into gold and the precious metals complex as re-allocations take place. Stocks could hold the key right now for gold, and if more signs of a stock top do begin to appear then gold may possibly benefit.