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Business
Market Radar: Wait Before You Buy Gold, Stocks and Oil “Weak”
Tuesday, June 21, 2011
By Bill Sarubbi
New York- (PanOrient News) Several cycles point to the latter part of June as a potential low. The markets appear to be closer to a low for several reasons. First, sentiment has improved in the sense that bearishness has risen.
The VIX, a measure of volatility has risen in the last week, but still not to a level that is consistent with past lows.
I suspect that the S&P decline will be closer to 10% at the low, about 2-3% below current levels. The S&P remains very overbought on a monthly basis, so there is the possibility that we have seen the high for the year, but the cycles suggest one more rally in July. Late July-early August remain the cycle top.
The 1125-1250 area is the target zone on the downside.
The mid-cap S&P 400 continues to lead the averages. During this period of volatility, the largest-cap stocks have not gained relative strength. There has been no flight to quality. The tech sector broke its prior relative strength low on its last decline.
In addition, momentum measure has turned down below its prior high, a bearish divergence. Thus, tech appears weaker than expected.
OIL
The oil market dropped, exceeding the $97 support level. The fact that oil has been weak when the cycle has been rising is bearish.
Oil appears near a very short-term low, but the cycle hits a high in the first week of July. Thus, oil may rise through the remainder of June, but is likely to decline after the first week of the next month. The downside target in July is around $88 per barrel.
GOLD
Gold is a special case due to its traditional role as money. In the latter stages of a monetary inflation, people shun paper money and switch to gold and other hard assets. Therefore, gold is in strong hands, meaning that the buyers are in gold for the long term.
The result has been that gold simply moves sideways or only slightly lower when the gold cycle turns down. Prior cycle declines have led to no loss greater than 7-8%. The cycle topped on Sunday and falls into July. The daily technical graph below appears neutral to bullish.
The weekly technical graph is overbought. Thus, there are conflicting signals. And, we must recall that gold is in a bull market. The best advice is to retain current gold holdings. Those who wish to buy are advised to wait about 4 weeks.
Bill Sarubbi, a strategist and portfolio manager currently operates his own business from Europe. He spends most of his time in Vienna, London, Tokyo, and Abu Dhabi.
PanOrient News
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