Equity markets rallied in the past hour back to their session highs just when it seemed we might get word from Florida's courts on how this whole election thing was going to be handled. We still don't have word, but equities are looking strong. Our upside alert on the S&P 500 has yet to be triggered at 1,373 and we're waiting patiently for that to happen.
S&P 500 Index Chart - 60-minute interval.
The SPX.X has started to move, but we're still waiting to see if this index can get above the 200-period MA (thin red) on our chart. The level remains 1,373 and this has us waiting to add to any bullish positions.
NASDAQ Composite Chart - 60-minute interval.
The NASDAQ (COMPX) triggered our upside alert this morning at 2,870, but has not been able to get above Wednesday's high of 2,911. This keeps us trading very disciplined and makes us wonder if big money is either waiting for fact, or possibly getting ready to "sell the news". If we start seeing more upside alerts triggered, we'll know how to trade. If they don't get triggered, we'll know that our discipline paid rewards.
Conclusion of Economic Theory
OK, you've waited patiently for our thoughts on why the Gold/Silver Index (XAU.X) and the 30-year Treasury yield (TYX.X) or 10-year Treasury yield (TNX.X) has been important. We're now going to put economic theory to test and how the markets have been acting toward these indexes.
From economic theory discussed at 11:30 EST, one would think that a downward move in Treasury yields would be followed by a downward move in gold/silver (precious metals). Especially if what we hear about economic slowing is occurring. But what we've actually been seeing and hearing just didn't make sense. At least part of what we were seeing. We've heard the case and seen some of the "hard data" for economic slowing. Companies coming out with earnings warnings, lower GDP number, etc, etc. Treasury yields have been dropping and that makes sense toward economic theory. What have we heard lately? Maybe the Fed is getting ready to cut interest rates right? If that's the case, then gold/silver should be trending lower right? Well, that's what is "different" and something we felt traders should be picking up on. We talk a lot about investor psychology and why it is so important to track. History has shown us that when equity investors panic, they get an overwhelming urge to "flee to gold". It was this type of observation that had us snooping for clues on how to trade equities and be looking for an indicator that would currently tell us something about the markets "mind". Two weeks ago we started noticing that yields were dropping precipitously (didn't someone say that declining yields were good for stocks?). From our logbook, we've taken notes from the past that had us alert to the environment we were currently experiencing that told us, "hey, in October of 1998, yields dropped rapidly and stocks did too). That made sense if you believed a recession was on its way with the Asian flu. What did we find out? Six months later, the flu bug had subsided and the NASDAQ Composite, S&P 500 and Dow Industrials surged in one of the greatest bull markets in a very short amount of time. What could have given us a clue of what was taking place in August of 1998 was that the Gold/Silver Index (XAU.X) was moving higher at that time. Remember, economic theory says that gold/silver should be following yields. Our only answer to that type of activity was the unexplained phenomena of investor psychology and the fleeing to gold/silver. If investor psychology was enough to warn us of the Asian flu back in 1998, perhaps it was a sign yet again. It doesn't have to be the "Asian Flu" but another reason for the activity we were seeing. We don't necessarily care what the reasons are, but if we are alert to and understand the impact, we can trade more knowledgeably. In conclusion we might say, when the gold/silver index rises in value and yields are trending lower, it's probably a signal that investor psychology has been shaken. When psychology is shaky, a mind can do "crazy things" and act irrationally. In the past, that type of psychology has had a negative impact on stocks. People hate losing money and they'd rather sell out of panic than experience further losses. It's this very reason we felt our readers should be aware of what we were seeing. If we feel that investors may be panicking, can't we be doing something to keep ourselves from succumbing to that type of euphoria? We've said before that a trader that panics begins making irrational decisions. We're here to make sure that doesn't happen.
World markets see impressive gains
Investors in the Asian/Pacific region were resilient Friday as they sought bargains in defensive issues and some tech stocks. Tokyo was dealt a mild setback ahead of the global benchmark MSCI's expected shift to a free-float system to calculate its worldwide indices. Hong Kong's Hang Seng closed up 1.18% as telecom giant Hutchison Whampoa leads the way with a gain of 1.55%, China Mobile also finished higher with a gain of 1.3%. Japan's Nikkei 225 closed fractionally lower, as buying of "old economy" shares failed to offset declines among tech stocks such as Sony Corp. South Korea's Seoul Composite rose 2.11% and Taiwan's Taiwan Weighted traded 0.77% higher. European markets trade in positive territory as tech and media stocks lead markets higher. Mining stocks kept Europe's benchmark indices in the green, on a report on a deal between Anglo American and Gold Fields of South Africa. The report stated the gold mining business is consolidating and that "bid fever" is in the air. London's FTSE 100 rises 1.16% on gains in the telecom sector and a firm Wall Street opening reinforced a positive mood among tech stocks. Germany's DAX pushed 2.37% higher as gains in U.S. futures point to a higher Wall Street opening. France's CAC 40 was up 1.43%. Leading Europe largest advancers was Russia's Moscow Times up 4.37% and Turkey's ISE National 100 rose 4.65%.