Not Liking This SPY S&P 500 vs GLD Gold Chart

Not much to say about it, really, other than to me it looks ugly. It looks very much like intervention by {someone} to prop up a narrative and not at all like normal market actions. SPY is rising, but with nothing real behind it, and GLD has topped, while the news is pushing it.

This is a 2 year chart, so shows both context and to some extent recent detail. It is a daily chart, so more detail oriented than the weekly tick mark charts that emphasize long term trend, still, with 2 years on it, you can visualize the trends.

SPY vs GLT and TLT 2 year daily chart Aug 2016

SPY vs GLT and TLT 2 year daily chart Aug 2016

First off, price of the main ticker, SPY, is rising, and all the normal trend following indicators say it ought to continue to rise, yet the strength indicators say “there’s no there, there”. So what the heck does that mean? Usually, that means the trend is ending or over. But with The Fed at Zero (or close enough for all practical purposes) does “usually” apply?

So the SMA Simple Moving Average stack is “normal” for a rise. Price over slowest over longest. The MACD is going sideways in a sort of an almost weave as it does in long duration trends, and is above the zero line so positive trend. Yet it is “red on top” that means exit or get ready to exit (put in stop loss orders or buy puts). Downward sloping indicating a weakening trend too.

ADX / DMI has blue over red (above black) all of small size, showing a confusion in the trend. The “positive” blue headed to nothing (trend up ending / ended) and with black ADX line at 15 and dropping indicating “no trend”… After a run up, no trend precedes drop… and red headed upward to take over the trend (i.e. “down soon” implied). (Click to embiggen the chart. There’s a tiny upturn in red in August).

Then there is volume. Just look at how weak it is under the latest up days. Volume dries up on rises before drops. (Look back at last Christmas / New Years and the August / October before that. Volume dries up, then prices drop. The market is a volume seeking mechanism as that is where commissions are generated.) Very much not good.

Now, some months back (June 16) I said the trade was to be in gold. It has been rising nicely for a while, but the last two months has not gone through a new high. Lows are rising, but not highs. Someone is selling at a price and putting a lid on rises. Looks like Gold needs a new look in more detail. It does have long stretches of near flat wobble, then jumps up in a few days, so this could be ‘toppy’ or just another waiting sideways.

Now also this graph has TLT on it. Long term bonds in a fund. (Why anyone would buy near zero bonds in a flat market facing a Fed Rate Hike “soon” is an interesting question, but clearly someone has been. Until the last couple of months…) It now has the same “spike and dribble” shape as the recent gold prices. So what the heck is going on? To me, it looks like prices have hit a top and big money is selling at that point.

But what the heck are they buying?

Whatever it is, it doesn’t look to me like it is on this chart. So I need to do a broader brush look at global assets. Big Money is looking for a return, and it isn’t seeing it in bonds, nor is gold interesting at this price, and stocks are just way too much risk for the tepid return. So is it all just running for cash, or for something / somewhere else?

While I’d not immediately abandon the whole gold trade, I’d start scaling out of it. Same thing for bonds (the odds of any rate decrease that would raise the value of existing higher premium bonds is near zero). Stocks look like a possible short “soon”. That mostly leaves real estate and commodities as places to look for play. Commodities not likely in a flat global economy and real estate a maybe.

OK, I have my work to do. This is just a heads up at best. A first glance “What The?” that says to go spend time figuring it out.

But I’m really not seeing anything in the US market to be happy about. Maybe from a ROW Rest Of World perspective the strong dollar makes it worth the near zero coupon on the bonds, but even there I’d be surprised as a straight currency trade would be as good. Then again, a lot of folks, like me, rarely or never trade currencies.

With that, I need to go digging and see what else turns up.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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20 Responses to Not Liking This SPY S&P 500 vs GLD Gold Chart

  1. John F. Hultquist says:

    The answers are beyond my skill set. James M. thinks it is central banks.

    http://www.wsj.com/articles/its-getting-scarily-quiet-in-the-stock-market-1471889703

    By James Mackintosh Updated Aug. 22, 2016
    It’s Getting Scarily Quiet in the Stock Market
    With the S&P 500 remarkably tranquil, the danger is not so much complacency about markets but complacency about central banks

  2. p.g.sharrow says:

    It would appear that CASH is king at the moment. Nothing is earning a ROA return at the present so where is the return on risk? The US Dollar or Real-estate is the last refuge in a world turmoil. Even National Governments are exiting Gold and Silver as a base for wealth storage. The $Dollar is the unit of measurement for value and exchange for stuff around the world. In a world where Deflation is the topic of the moment holding $Dollars are the last refuge.
    My self, I’d rather have stuff. But stuff is a storage and tax liability for speculators…pg

  3. Larry Ledwick says:

    I just got back from a vacation trip that I take about this time of year which I have taken for the last 10 years. I usually stop at one of the large truck stops on I80 in Rawlins Wyoming to gas and get a bit of rest, and I noticed both on my trip out and trip back that their parking lot was unnaturally empty. In the past at the same exact time of the year they would have had at least 2x as many cars in the lot and dozens of folks running around the stores inside and eating at the restaurant.

    Just another one of those little observations that people are holding back on travel and other discretionary expenses even though fuel is quite affordable compared to prior years.

  4. Larry Ledwick says:

    http://dailysignal.com/2016/08/18/central-banks-now-selling-us-debt-at-record-pace/

    Lots of countries are selling US debt at record rates.

  5. David A says:

    G 20 meeting coming up?

  6. E.M.Smith says:

    I think it was Waiting For Yellin at Jacksonhole…

  7. Alexander K says:

    The real estate market is booming in New Zealand, with Socialists currently attacking the gubmint for ‘not doing something’. From where I am standing, (mid-seventies) it looks pretty much like a bubble, and like all bubbles, something will burst it at some stage. Kind of interesting, but a bit scary too.

  8. Larry Ledwick says:

    Appears a major ocean shipping company has just gone bankrupt and this will probably have cascading consequences to shippers and suppliers.

    http://davidstockmanscontracorner.com/global-deflation-alert-hanjin-bankruptcy-puts-global-supply-chain-in-turmoil/

  9. Larry Ledwick says:

    Now the question is what happens if a tidal wave of off shore cash suddenly comes home to America?
    Inflation? Banks suddenly flush with deposits? Where will it get held ? — dumped into stock buybacks, bonds, capital investment??

    https://www.theguardian.com/business/2016/sep/03/ireland-apple-silicon-valley-money-burning-hole-wallet

  10. Larry Ledwick says:

    Interesting item in Financial Times, apparently investment banks are getting pinched by down turn.
    http://www.ft.com/cms/s/0/57dde0f8-712e-11e6-a0c9-1365ce54b926.html

    A 10 per cent ROE has long been considered a rough-and-ready benchmark for a company making good use of shareholders’ money. But the average for the Coalition group this year is expected to be 5.4 per cent, ticking up only slightly to 6.6 per cent in 2017.

    Some banks are clearly in firefighting mode: Deutsche Bank chief John Cryan, who has axed thousands of jobs, cut risky assets and suspended dividends over the past year, is now weighing further options. At Credit Suisse, chief executive Tidjane Thiam is trying to pivot away from trading towards wealth management and Asia.

    But other big banks, particularly in the US, appeared to be “plodding along” with ROEs not much better than Deutsche or Credit Suisse, said Professor Roy Smith of New York University Stern School of Business. Boosting returns needed “out-of-the-box thinking” and perhaps external pressure from activist shareholders, he said, to force deeper restructuring.

    The question is will the “out of the box thinking” lead to even riskier behavior and fatally flawed schemes to raise revenue?

  11. Gail Combs says:

    Larry, I am still trying to get my head around printing monopoly money and lending it out as if it represented real wealth — 100% profit less admin costs — and a bank ‘failing’

    When you think about it you have to be a really bad crook to fail when lending out worthless bank script and getting a lean on REAL property plus payments that are mostly interest at the beginning of the Loan Amortization Schedule. OH, and don’t forget ‘Origination fees’ “This is charged by the lender to cover the costs of making the loan.”

    Even with credit cards, the vendor pays credit card processing fees (2.5% to 5% depending on bank and volume.)

    With that as a business model, how in Hades do you get a ‘Failed Bank’???

    Money Is Created by Banks
    Evidence Given by Graham Towers

    Some of the most frank evidence on banking practices was given by Graham F. Towers, Governor of the Central Bank of Canada (from 1934 to 1955), before the Canadian Government’s Committee on Banking and Commerce, in 1939. Its proceedings cover 850 pages. (Standing Committee on Banking and Commerce, Minutes of Proceedings and Evidence Respecting the Bank of Canada, Ottawa, J.O. Patenaude, I.S.O., Printer to the King’s Most Excellent Majesty, 1939.) Most of the evidence quoted was the result of interrogation by Mr. “Gerry” McGeer, K.C., a former mayor of Vancouver, who clearly understood the essentials of central banking. Here are a few excerpts:
    Q. But there is no question about it that banks create the medium of exchange?
    Mr. Towers: That is right. That is what they are for… That is the Banking business, just in the same way that a steel plant makes steel. (p. 287)
    The manufacturing process consists of making a pen-and-ink or typewriter entry on a card in a book. That is all. (pp. 76 and 238)
    Each and every time a bank makes a loan (or purchases securities), new bank credit is created — new deposits — brand new money. (pp. 113 and 238)
    Broadly speaking, all new money comes out of a Bank in the form of loans.
    As loans are debts, then under the present system all money is debt. (p. 459)

    Q. When $1,000,000 worth of bonds is presented (by the government) to the bank, a million dollars of new money or the equivalent is created?
    Mr. Towers: Yes.

    Q. Is it a fact that a million dollars of new money is created?
    Mr. Towers: That is right.

    Q. Now, the same thing holds true when the municipality or the province goes to the bank?
    Mr. Towers: Or an individual borrower.

    Q. Or when a private person goes to a bank?
    Mr. Towers: Yes.

    Q. When I borrow $100 from the bank as a private citizen, the bank makes a bookkeeping entry, and there is a $100 increase in the deposits of that bank, in the total deposits of that bank?
    Mr. Towers: Yes. (p. 238)….

    (wwwDOT)michaeljournal.org/appenE.htm

    Now tell me again why the US tax payer went deep into debt for generations to bail out US banks….

  12. cdquarles says:

    Gail, because the government owns the banks and requires fractional reserving so that the government benefits from the inflation as long as it lasts. [Why do you think that the Progressive, for the most part Federal Government created the Federal Reserve in the first place and got their fellow travelers in banking to go for that offer that they couldn’t refuse?] As von Mises says, this will eventually break one of two ways, either a hyperinflation or a real deflation with the currency replaced, because the government was replaced. Don’t forget that the Federal Reserve is a GSE, like Fannie and Freddie.

  13. E.M.Smith says:

    Gail:

    In addition to CDQuarles points, remember that bank profit comes out of what is left after bonuses are paid, large salaries are paid, and family on the payroll are paid… oh, and sometimes the $millions mortgage on the boardmember’s or Chief Officer’s home is “forgiven”…

  14. Gail Combs says:

    Bankers = Crooks
    Got it! But I knew that already.

  15. Larry Ledwick says:

    Relevant to the above: The evolution of our economy and who pulls the levers of power.

    https://theconservativetreehouse.com/2016/09/06/donald-trump-discusses-the-false-economy/

  16. Larry Ledwick says:

    The question is: Is this the setup for a cover operation for HRC that if Trump wins that the powers that be pull the plug on the markets and blame it on Trump?

    This could be a no lose option that if HRC wins and the economy nose dives they can still try to blame it on Trump’s rhetoric during the election cycle. It will be interesting to watch the hedge bets as the election happens to see if the big money is going to go that far to destroy Trump?
    It could be a heads I win, tails you lose play where everyone in the know, understands the economy is cratering, and looking for a scape goat to blame.

    http://www.businessinsider.com/mark-cuba-no-doubt-in-my-mind-market-crashes-if-trump-wins-2016-9

  17. Gail Combs says:

    Yeah, my thought is the economy is set to tank in 2017 — 2020. Remember a lot of Obummer’s legislation DOES NOT TAKE EFFECT until 2017. I think the crash was supposed to occur on the Jeb Bush watch and Hitlery was supposed to be so bad every one went with low energy Jeb.

    However Trump upset the plans so you now have

    The Latest American Export: Inflation at the start of Obummers Admin.

    And now as Larry just pointed out:

    Central Banks Now Selling US Debt at Record Pace

    So all that inflation we exported for the last eight years is headed home to land all at once…

  18. Larry Ledwick says:

    @EMS
    Thought you might like this quick summary of “rules” for investing.

    http://davidstockmanscontracorner.com/bob-farrells-illustrated-10-investment-rules-2/

  19. E.M.Smith says:

    There was a global move to ZIRP, and now the election has other nations fearful of the outcome… Trump threatening the money hose of debt… and zero interest an issue.

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