Although NASDAQ is making new historical highs, the market internals do not support these tops. Look at the chart below:
source: Stockcharts.com
The lower panel of the chart shows the amount of stocks establishing new 52-week highs. Note that despite the index making new all-time highs (the blue arrrow on the upper panel of the chart), the amount of stocks doing the same is rapidly going down (the red arrow).
Well, it is not a typical pattern printed by a healthy bull market...
The gold market looks like being in a typical short-term bear cycle:
The green line indicates that since middle April 2018 the gold has been in a downward trend.
However, this chart says something different:
The chart shows a popular gold market performance measure, the gold / silver ratio. To remind you, during the furious bull markets in precious metals the ratio is going up. And vice versa - during a bear market it goes down. The message delivered by the above picture is quite simple - the precious metals market is in a bull cycle.
And the last chart:
This time the chart shows another popular performance measure, the GDX / gold ratio. Once again, during a typical bull market in precious metals GDX (or gold mining companies) outperform the gold itself. The blue up-trending line evidences that the precious metals market is in its bull cycle.
So the question is: "Are we in a bear or bull market in precious metals?"
We live in interesting times. Generally, gold and the US dollar go in the opposite directions but after the latest FED decision both instruments go in tandem:
source: stooq.com
What is more, most recently the silver / gold ratio exploded to the upside but gold still cannot break above an ultra short-term resistance at $1,307 - $1,310 per ounce (the red, dotted line on the lower panel of the chart):
source: Simple Digressions
Finally, JP Morgan is furiously hoarding silver:
source: Simple Digressions
I think there is something big in the making...
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It happened at last. Now there is high or even extreme pessimism among big speculators trading precious metals futures on the COMEX. Look at these two charts:
source: Simple Digressions
and this one
source: Simple Digressions
The chart shows current (as of May 15, 2018) net positions held by money managers (big speculators) in gold and silver futures at the COMEX. Note that these traders are very pessimistic about gold (red circles on the upper panel of the chart) and silver (blue circles on the lower panel).
For example, money managers trading silver futures hold a large, net short position. Interestingly, even at the end of the latest bear market in precious metals (December 2015) these speculators were less pessimistic.
The same pattern is visible on the gold chart - yes, money managers are now less pessimistic than at the end of 2015 but their pessimism is comparable to that visible at the latest bottoms (red circles).
As a result, as a tough contrarian, I am once again optimistic about gold and silver in the short and long-term perspective.
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After the FED's decision to keep interest rates unchanged the gold was quite strong. Despite the US dollar making another ultra-short term top, gold prices held well:
source: stooq.com
Note that yesterday (May 1) the US dollar broke above its resistance (the red line) but gold did not break below its ultra-short-term support (the green line). So there is a small, positive (for gold) divergence.
What does it mean? Generally, in the long term it means nothing at all (the big picture remains unchanged) but in the ultra-short-term we may see gold prices going a bit higher now (as I wrote in my latest piece - it is a very primitive short term trade).
What is more, the GDX / gold ratio is supporting a relatively bullish thesis on gold:
source: Simple Digressions
As the chart above shows, since late March 2018 the ratio has been in its upward trend. Interestingly, this time it is a promising medium-term signal (the shares of precious metals mining companies are stronger than bullion). It looks like Mr. Market wants to tell us:
"Not everything is that bad with precious metals as it looks"
