The MasterCharts: Gold and Financials
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Tuesday, May 17, 2011

Gold and Financials


Gold and Financials
From Richard Russell:

The best comment on gold that I have seen comes from my old friend, Ian McAvity in his latest mailing of Deliberations : "The latest run on gold came from the early April breakout through the area around 1425, which becomes a logical support area for a corrective pullback. Gold first crossed $1400 in November and fought it for 21 weeks. The prior significant breakout was through the $1260 level, first touched in early December, 2009, and penetrated 22 weeks later with more follow-through, and finally resolved with conviction in September, 2010, 42 weeks after the first touch.
"Measuring swings with intra-day Comex extremes, this run gained $268 in 14 weeks from the late January low to the $1577 high this week. The prior two rallies (to $13451 & $1262) gained $275 in 19 weeks and $220 in 20 weeks. With recent runs and corrective phases running about 20 weeks in duration, it's possible this run could extend further. But the blowoff and turbulence in silver in the past two weeks, and the lousy relative behavior of the gold and silver shares prompts me to speculate an intermediate top may have been put in, and we may need another period of 20 weeks or so to correct, digest, cool off and set-up the next leg."

Below, a chart covering two years of gold action illustrates gold's repeated periods of correction, a period of consolidation lasting roughly 14 to 20 weeks, and then an upside breakout to new highs. The current situation may be a repeat of this same action that has occurred repeatedly over the last two years.




Russell advice -- Be patient with your gold, and sit tight.

Lowry's statistics remain bullish. My PTI remains bullish. The Dow and the Transports recently bettered their April highs, which (from a Dow Theory standpoint) is bullish. But I remain nervous regarding this market. One reason is seen through the chart below.
This is the ETF for the Financials, and it has formed a bearish descending triangle. It's hard to envision this market as being healthy with the financials in such poor shape.



I didn't fully trust the ETF above so I looked for confirmation, and I found it. Below we see the NYSE Financial Index, which contains ALL the financial stocks on the NYSE -- banks, S&Ls, small loan companies -- and this chart looks no better. It's hard to see the market climbing without the financials. The financials have been one of the big success stories since the 2009 lows. The Financials now appear to be under distribution. Best, we keep an eye on them.



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