Gold has made some good progress in the last three weeks, and not surprisingly, so has the Gold & Silver Mining Index (XAU). When we looked at the chart recently, we saw a number of features worth talking about.
The Percent Buy Index (PBI) shows the percentage of medium-term BUY signals for all the stocks in the S&P 500 Index, and the chart tells us if the index is medium-term overbought or oversold. Toward the end of May the PBI hit the highest reading (94.2) in its almost 14-year history.
While we tend to focus more on the short and intermediate term, we notice that there is a lot going on in the long term time frame. Most obvious is the breakout above the top of a long-term trading range.
Apple (AAPL) has been rallying since it hit a 52-week low in April, a fact that has benefited the broad market in general and the technology sector in particular. It also gives us another opportunity to demonstrate the disadvantages of cap-weighted indexes compared to their equal-weighted counterparts.
With the recent volatility in gold and silver prices, it would be nice to get an idea of what sentiment is like. Measures of sentiment tell us if there is too much optimism or pessimism in a particular market. There are a number of sentiment trackers for stocks, but very few for precious metals. One that we track is the premium or discount on shares of Central Fund of Canada (CEF).
Next Wednesday, May 1, begins a six-month period of unfavorable seasonality, of which we are commonly reminded by the saying “Sell in May and go away.” Research published by Yale Hirsch in the Trader’s Almanac shows that the market year is broken into two six-month seasonality periods. From May 1 through October 31 is seasonally unfavorable.
While gold is still maintaining a long-term consolidation, gold mining stocks have signalled that still lower prices are to come. This article illustrates the disparity between the price of the physical metal and the value of companies that produce it.
We periodically take a look at where the S&P 500 Index is in relation to its normal P/E range to see if prices are overvalued or undervalued. Currently, we see that values are a bit rich, but not yet at the overvalued level.
There are negative divergences on a lot of indicators we track, but the advance-decline lines for breadth and volume are actually confirming the recent new price highs. This is reassuring but, it does not guarantee that even higher prices are coming.