Morning Comment...Gold Ripe for a Pull-Back...June 25, 2019 - BTFNow

Quiet Day On Monday

As expected, it was a relatively uneventful day for the 3 major stock market averages yesterday…as they all saw very small moves…and volume was about 12% below the average daily volume we’ve seen so far this year. Again, with the G20 meeting coming later this week (and the side meeting between President’s Trump & Xi)…and the OPEC meeting next week…things should remain relatively quiet over the next few trading days.

Russell 2000 & Transports back in Correction Territory

If there was one disappointment yesterday, it was the continued under-performance of two out of the three key leadership groups/indexes we’ve been harping-on recently. Both the Russell 2000 and the DJ Transportation indexes fell by more than 1%...with the Russell falling 1.26% and the TRAN seeing a 1.5% decline. This means that both of these indexes have moved back into correction territory…at a time when the S&P is testing new all-time highs!!!

Even though the Transports fell more than the Russell index, the drop in this small-cap index was actually more concerning. The reason for this is that the volume on the IWM Russell 2000 ETF was almost 24 million shares…making it the second-highest volume day of the month. “Big volume declines” are never good, but when they come on Monday’s (which are usually quiet)…and on a day when the overall volume was meager…it becomes a more important development. Also, the Russell fell back below its 200 DMA and below its trend-line from the early June lows. Of course, this trend-line is only three weeks old…and we do have the big “Russell Rebalance” on Friday…so that might explain-away a small part of these readings. However, there’s no question that this key leadership index continues to perform in a very disappointing manner.

The technical picture for the Transports is very similar…with the DJ TRAN index dropping back below its 200-DMA (after only a very brief move above it)…and below its 3-week trend-line. We’d also note that the MACD charts for both indexes are curling over at a lower level than its previous drop…for the second time in just a few months. In other words, even though the most recent weakness in these two indexes is only a few day old, each the last two bounces (for both indexes) has seen much less upside momentum that the previous one. THAT does not bode well for the chances that either of these two leadership indexes will play catch-up with the S&P over the coming days and weeks. (1st two charts below.)

Gold Has Become VERY Over-Bought and Over-loved (near-term).

Switching gears, gold has obviously had a great run recently. It has rallied $150 since late May, and this has taken the yellow metal well above the all-important resistance level (of $1,380) that we’ve been highlighting for over a year now. This is very bullish on an intermediate and long-term basis, BUT we do NOT want to chase gold at these levels. It has merely become too over-bought and too over-loved after this recent strong rally.

First of all, it’s daily RSI chart moved above 87 at one point this morning…and its weekly RSI chart has reached its most over-bought condition since the 2011 all-time highs. Also, the volume in the GLD gold shares ETF has been well over double the average daily volume for this year over the past three trading days! (“Higher volume” is usually good during a rally…but when it jumps by an extreme amount, it tends to signal a short-term top.) On top of all this, the DSI data shows that bullishness among futures traders hit 96% last night. That is about as high as you ever see this reading for any asset, so sentiment has reached a severe extreme for gold as well. Therefore, we believe that the commodity has become ripe for a SHORT-TERM pull-back…and should not be chased up at these levels right now. (3rd & 4th charts below.)

However, Gold still looks quite good longer-term.

Don’t get us wrong; we think that this move in gold is an excellent one on a longer-term basis. It has now broken its crucial resistance level by $50, so that is a significant break-out. What’s more, it leaves the commodity plenty of room to pull-back and work-off some of its oversold condition…while still remaining above its old resistance level. (Remember, old resistance…becomes new support.) However, we just believe that after a rally of $150 in just one month (+12%)….gold has become SO over-bought and SO over-loved on a near-term basis that taking a step back should be a good idea for investors right now. Therefore, short-term traders should take some profits here…and longer-term investors should look for lower prices to add to positions in our humble opinion.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jun 25, 2019 — 8:06 AM
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