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Where Next?


A technical overview of the broad market, individual sectors and gold.


I've had a number of requests to update the market based on the DeMark indicators I use and over the past week or so I've received quite a few messages that are pretty similar to this one:


Not knowing where to put money lately, as the market feels very overbought and I, like many, feel we are close to a major correction, I put a high amount of my funds into GLD and GDX. Today is bloody for my investments. Where does one turn?

Let's look at the broad market first.

The SPX daily chart of the futures, as of Thursday we are on bar 9 (of potential 13) TD Sequential Sell signal with an overlapping bar 5 (of potential 9) sell setup.

The same pattern (bar 9 with overlapping 5) exists for NDX.

Russell 2000 is nearly identical, bar 8 and 5, as is the Dow.

On a weekly basis there is not much change from what I wrote last week. The SPX upside weekly target of 845 was met, exceeded slightly, and my interpretation is we are in the process of concluding the move higher off the perfected TD Buy Setup from the week of March 13. The Russell 2000 looks similar, while the NDX (which remember made a higher low compared to the SPX the week of March 13) still appears to have upside to 1415.

There remain some positive longer-term charts shaping up in other areas and so rather than trying to sell the broad market down to make new lows, I am focusing on places to buy on weakness when/if the market does turn lower.

For example, take a look at this normalized chart showing the SPX and NDX overlaid and note how on the most recent move down the NDX did not make a new low the way the SPX did. I am reading that as a constructive sign for individual stocks and certain sectors.


Among specific sectors:

  • The IYH (iShares Healthcare Sector), which on a move below 43.99 sometime in the next six weeks would perfect a monthly TD Buy Setup.

  • The IYE (Energy sector ETF has already perfected a monthly TD Buy Setup this month.

  • XLP (Consumer Staples) needs a move below 19.27 in the next six weeks to perfect a potential TD Buy Setup.

Also, on March 24 on the Buzz and Banter, I posted about the positive DeMark indicator developments in the Emerging Markets ETF (EEM) and India Fund (IFN). Since then the EEM is up 9.6%, the IFN up 25.7%. I believe these are nearing short-term exhaustion points and have taken the trade, though they remain far more constructive longer-term than the U.S. market.

As for Gold, the question, of course, is one of time frame. My view, first outlined in Five Themes for 2009 that we will see lower prices for both stocks and gold this year, has not changed.

If someone has money invested in gold as a combination safe haven and hedge against a sharp increase in inflation, then technically we are looking at several hundred dollars of downside here versus several thousand dollars of upside. I am not in that camp, as you know, but the arguments on both sides are persuasive.

If, however, someone has money invested in gold as a speculative trade'/investment, then I believe the technical picture is very clear, that gold is not a place to be speculating here. In fact, I am most bullish longer-term on silver, but believe we could see prices closer to $8 an ounce before we see prices above 20.

My bullish view longer-term on silver is not a comment on economic disaster or related to a hedge against a currency collapse, however. It's merely speculation, which is why, again, I am not buying here with $4 downside compared to, I don't know, $50 upside? I am too price sensitive to be able to withstand a 35% drawdown. That may be a mistake. We shall see.

In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.

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No positions in stocks mentioned.

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