"No man can become rich without himself enriching others"
Andrew Carnegie

Wednesday, February 20, 2013

Look for the Breakdown in Gold to Continue

 It appears buyers are in search of cheaper assets

Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX) agreed to merge on a stock-for-stock deal. The Wall Street Journalreported that the total value of mergers and acquisitions is the highest since 2005.
At the close, the Dow gained 54 points at 14,036, the S&P 500 rose 11 points to 1,531, and the Nasdaq gained 22 points at 3,214. The NYSE traded 734 million shares and the Nasdaq crossed 420 million. Advancers led decliners by about 2-to-1 on both the Big Board and Nasdaq.
Each of the major indices rose to new highs Tuesday: The Dow broke through five-year resistance at 14,039; the S&P 500 ran through its five-year high of 1,525; and the Nasdaq set a 12-year high by slicing through resistance at 3,206. (See yesterday’sDaily Market Outlook.)

Trade of the Day Chart Key
Gold, as represented by the SPDR Gold Shares (NYSE:GLD), has broken down with gusto. This was accompanied by a breakaway gap followed by a continuation gap through the support line at about $162. 
There is a chance that the downtrend can be slowed as prices approach the lows of May 2012 at $148 to $150. But that is a slim one since high-volume continuation gaps most often are shortly followed by another plunge. 
Since RSI is very close to being extremely overbought, holders of GLD might want to place a stop-loss under the May lows. Rallies will almost certainly be limited to the top of last week’s gap at $158.
Conclusion: I am reminded of a truism often repeated by the master of point-and-figure analysis, Earl Blumenthal. Earl used to say, “Stocks that make new highs will continue to make new highs.” 
That has certainly been an accurate analysis of the U.S. equity markets. And so Tuesday’s breaks to new highs will most likely be followed by new highs until some cataclysmic event occurs or stocks just “run out of gas.” My bet is that they will continue for a few more weeks until they run smack into what “The Kudlow Report” called “sequester crunch time.”
As for gold, with talk of currency debasements and currency wars, some countries repatriating their gold, and fear in Europe of another round of economic woes, it would seem that the metal should be making new highs.
But, as pointed out recently by a savvy international researcher, Indian and Chinese buyers have switched to buying U.S. stocks, real estate in Paris, London, New York, Hong Kong, and Singapore, and global equities. In other words, “money flows to the cheapest asset,” and that asset is not gold. ...

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