Don't Get Bullish on Gold Below $1350
Wednesday, 10/29/2014 19:19
This month's "triple bottom" is not, repeat NOT, confirmed says this technical analyst...
WAYNE KAUFMAN is chief market analyst at Phoenix Financial in New York.
Regularly quoted in the media and interviewed on Fox, CNBC and the BBC, Kaufman
produces a daily report for Phoenix, is a member of the Market Technicians Association, and has taught level 3 of the MTA's three-level online course for Chartered Market Technician candidates.
Here Kaufman speaks to Mike Norman on behalf of Hard Assets Investor about how he sees the big picture right now...
Hard Assets Investor: We've seen some crazy gyrations in gold, in the Dollar, in oil, even in stocks. Summarize how it looks to you.
Wayne Kaufman: In terms of US equities, we've been watching a deterioration of underlying market breadth, that hasn't shown up, or had not shown up in the major indexes until the last couple of weeks. But for the last three or four months, we've been watching small-caps get decimated. And then the midcaps followed. And then the large-caps, S&P 500, had a peak recently. But the breadth was terrible.
And now the stocks have rolled over. It's to the point where you've only got about 18% of S&P 1500 stocks over their own 50-day moving average, less than one in five. About one in three are still over their 200-day moving average. So that underlying deterioration came through and pulled down the majors.
HAI: Now with small stocks weak like that, wouldn't that suggest general economic weakness, or at least a tipoff to that effect, that we're seeing basically small, medium-sized businesses not doing very well?
Kaufman: Definitely. You're right. You're talking about changes taking place. The question in the mind of investors right now is, we're seeing the weakness in China, in Europe, in Germany suddenly rolling over. You've got the price of oil. It's all of these things that are turning dramatically. Is this a long-term trend change? Or is this just going to be short term? Is it just typical October stuff, in the case of equities? That's what we're going to find out over the next few weeks.
HAI: But is there really a downside, when people know the central banks are going to be there, push comes to shove?
Kaufman: There, at a point, is only going to be so much that the central banks can do. I was recently asked by a news outlet to give my projections for the S&P, and my reasoning. My No. 1 reason for being bullish is central banks around the world will do everything possible to prevent a global recession. Are they really able to do much more? We know they'll try. Are they going to wait too long before they do? How effective can they be?
HAI: Last time you were here, you were negative on gold. And that play worked out pretty well. How do you see things panning out from this point?
Kaufman: I see short-term, over-sold and over-bearish sentiment. So a bounce is definitely in the cards, especially if there's some short covering by people who are short the futures. But when I was here last time, I said I couldn't get bullish unless gold broke $1400 or so. Now that number is a little lower.
HAI: Where is it?
Kaufman: $1300. I need to see $1350 at least, because you do have a potential triple bottom. A lot of people say, "Oh, triple bottom." It's a potential triple bottom that doesn't get confirmed until you break unimportant resistance. Unless we can get above $1350, I'm not going to start thinking about getting bullish, except for oversold, over-bearish bounces.
HAI: We had a guest recently talking about the death of gold. Reminds me of the death of equities back on the infamous 1979 Business Weekcover. What do you make of that?
Kaufman: I agree. That's why I'm saying I could see a bounce here, because it's oversold, and it's over-pessimistic. Levels of pessimism are extreme. And when you see that, that's a good time to take the other side of that trade. The question is, how much staying power? You're talking about commodities going down. The Dollar has been strong, which is a little too much bullishness in the Dollar. That certainly can be capped here.
But oil is just amazing. For years, you always said that the Saudis controlled the price of oil. You were 100% right. Because they're the only country that really has significant excess capacity. Right now, are the Saudis purposely trying to drive the price of oil down, so that they can try and put a cap on fracking and energy exploration and production here in the States?
HAI: The shale guys, the shale producers.
Kaufman: Potentially an amazing tactical war going on between the Saudis and the US, in terms of oil production.
HAI: I saw an example of that back in the '80s, when I was an oil trader on the floor of this very exchange, when they crashed the price down. That was a message sent to the non-Opec producers, the North Sea guys in particular. So I think you're absolutely right.
You mentioned the Dollar. That was a surprise to most people, because we had this narrative, for a long time, about money printing, and central banks, and quantitative easing, and hyperinflation and the Fed doing all this. Yet, look at the Dollar.
Kaufman: I don't want to seem like I'm complimenting you because you're the host, but you said this a long time ago.
HAI: Don't hold back...
Kaufman: You said a long time ago, all the inflation guys, that they were wrong, they were going to be wrong. You were 100% right. So it was a big surprise. Now, as a technician, I called the Dollar going up at a point when I saw it giving me buy signals. I don't do it the intuitive or the economist way. It's extremely overbought. And it's extremely over-bullish. It has been taking a pause. I think it'll continue to pause here. It's just too many people on that side of the trade at this point.
HAI: We heard comments recently from New York Fed President William Dudley, to the effect that a Dollar that's too strong might hinder our ability to achieve our goals. Hint, hint, a little bit of code words there...
Kaufman: You're right. But the problem they have is that the strong Dollar is going to hurt exports, obviously. But you've got S&P 500 companies due in the neighborhood of 40% of revenues, 50% of profits overseas. So, whether it's from the strong Dollar or just because the economies overseas are very weak right now, no matter how you go on that, it's going to be a problem. And the world economy needs to clear up. We're not an island unto ourselves; it will affect us. And I think that's what equities are starting to show.
HAI: Good points. Wayne, always great to have you here. Thanks very much.
Email us