The equity markets appeared due for a pause last month, and the Fed’s “taper” caper may have simply been just a catalyst. Whether the sharp, steep decline, is actually over, is not yet clear. Indicators deteriorated dramatically and although improved somewhat with the slight kickback rally at week end, may set up for further weakness ahead.
Major transitions can unsettle markets, so unless the Fed assurances have calmed their taper storm, we anticipate continued volatility and uncertainty, notwithstanding a summer rally, even to new highs, possibly with indicator divergences. But we also anticipate the potential for further weakness from the 4-Year Cycle low due into 2014.
Most of the global markets have deteriorated further from last month’s concerns, giving weekly, intermediate momentum model Sell signals, many with the negative divergences in place discussed last month, warning of the potential for these further declines. The technical developments suggest more time either in consolidation or further corrective trends, notwithstanding interim rallies.
The rallies as we go to press appear more characteristic of kickback rallies following steep declines, which could encounter resistance at the broken support levels above. The rallies may develop as part of a sideways consolidation, or to be followed by further corrective action, if the momentum remains negative. New highs, less likely at this point, can’t be ruled out, but would require considerable repair for most indexes.
GOLD: Monthly, since January, we’ve presented extended cautionary discourses on Gold Spot price (GOLDS-1,234.57), and most recently were concerned with a break of 1,347 which has now occurred (allaying media speculation for a double bottom), and now both our 1,250 and 1,200 targets have been met in short order as many are rushing to the exit (see Figure 27), taking Gold as low as 1,180.
The smaller descending triangle formed since March 2013, offers another target by measuring the back of the triangle (1,485-1,320 roughly) the difference of which can be projected down from the recent price breakdown to achieve a lower target of 1,155, near the 2010 low. The decline to date is 39%, a defined bear market. There is always talk of trying to pick a bottom, but don’t try to catch a falling sword! Gold has certainly declined enough to bounce, but we don’t know when a bounce will occur! Momentum models (not shown) are all hard down suggesting risk remains.
Remember “the greater the drop, the longer the need for repair” … it’s as if the steel ball, wrecker and crane came to your house; it will take time before the mason, carpenter, electricians can put it all together again. Gold may be considered very oversold, as it was after the April decline, and it can get more oversold, as it has now!
Interim, even generous, rallies could take place into the broken support of 1,347, and even 1,400, but with the momentum both weekly and monthly still declining, the potential for risk still hovers.