Take the Low Risk Road

The S&P 500 Index has hit numerous new highs in the past three years.  Note the log-scale graph below and the broken support lines from 2000 and 2007.  The current support line, depending on where it is drawn, is on the verge of breaking.

SPX

Further, Paul Mylcheerst says the modified monthly MACD has given a sell signal on the S&P.  The same indicator gave sell signals close to the peaks in 2000 and 2007.

There is significant risk in the S&P 500 Index in spite of the fact that central banks and governments have successfully levitated the stock and bond markets.

By contrast, the XAU, an index of gold stocks, has fallen to a 13 year low, and the monthly MACD indicator that gave the sell signal on the S&P has tentatively indicated a buy signal on the XAU.

XAU

What about the ratios?

Consider the ratio of the XAU to the S&P 500 Index.  The ratio is at the low end of the 20 year range and at a 14 year low because the XAU stocks have been crushed and the S&P has been levitated.

The S&P up and XAU down trends appear ready to reverse.  The charts show extremes in prices and in the ratio.

The low risk trade is to sell S&P related stocks and to buy gold, silver, and gold and silver stocks.  Sell high and buy low!

XAU-SP

CONCLUSIONS:

  • The S&P 500 Index hit an all-time high in May 2015.
  • The XAU index of gold stocks hit a 13 year low this month – July.
  • The XAU to S&P ratio shows that gold stocks have been weak for several years and appear ready to reverse higher.
  • Gold prices have been crushed since August 2011 while paper bonds and stocks have been “strongly encouraged” by global central banks.
  • The MACD (modified by Paul Mylcheerst) has given a monthly sell signal on the S&P 500 Index (don’t discount this), a buy signal on the XAU, and is close to a monthly buy signal on gold.

Take the low risk road.  At this time the S&P looks like a high risk path while gold, silver and the XAU look like a low risk road.

 

Gary Christenson

The Deviant Investor

 

 

3 thoughts on “Take the Low Risk Road

  1. The “low-risk trade” is not trying catching falling knives. The low-risk trade is to get in early on a trend and stay with it. Gold it still in a downtrend and the S&P500 is still in an uptrend. Both trends are rather long in the tooth. If you managed to get in on them early enough – maintain course. But jumping in on either of them now is a bad idea – and so is trying to call tops or bottoms. Wait for the trends to reverse clearly and then get on them.

    Oh, yes, and ignore the always-bullish-on-gold promoters – they are detrimental for your wallet’s health.


  2. D. D. requires a serious consideration of D. & D.

    When one considers investing in the stock market these days, one must do their DUE DILIGENCE. One must also give very serious consideration to the tremendous perils of increasing global DEBT – over 200$T – as well as the massive, leveraged $1.5Q DERIVATIVES (the root of all evil).

    Peace of mind these days comes from holding physical gold & silver outside the banking system. A great time to consider these suppressed physical metals before we likely hit a serious financial storm this fall. Personally, I love Sprott Money Ltd in Toronto – the best in North America according to Jim Sinclair, Bob Moriarity & myself – in selection, service & pricing.


Leave a Reply

Your email address will not be published. Required fields are marked *