There are plenty of reasons to turn bearish on gold (huge increase in speculative long interest, bearish seasonality, etc.) after a nearly $200/ounce advance in the space of one month. However, the price action is undeniably strong and the relatively shallow recent pullback offers plenty of reason to be bullish in and of itself:
Gold (Daily)
All eyes are on this pennant pattern in gold which could resolve with a move above $1235 or below $1200.
Meanwhile, the S&P 500 (SPY) failed on its first test of the falling 50-day simple moving average since last year:
SPY (Daily)
This is the 2nd time that the S&P has met resistance at this level (~$194.50) in the last month and it is no accident that it roughly equates to the 50% retracement of the steep December/January decline. Infamous market timer Tom DeMark is warning that today’s close in the S&P means that trouble is ahead for equities:
“The foundation of the ongoing rally is suspect…..The temporary buying produces a price vacuum beneath the market and accelerates the subsequent decline. The decline is going to be sharp.”
We can’t argue with the man. As J.C. Parets pointed out last week, a long gold/short S&P 500 trade looks very good right about now.