Morning Comment: Gold suddenly has a lot of upside potential

The upside momentum in the stock market continues to be relentless. Even though the S&P 500 has rallied 17% off its June lows…and it now up 4 weeks in a row…and has become overbought on a short-term basis…every dip is bought by investors. We do admit that with a reading of 72.5 on its RSI chart, this key index is not wildly overbought. Thus, it’s not like we think it is totally insane that the market keeps rising. However it IS getting overbought…..It’s still about 25 points from reaching its 200-DMA, so maybe that line (which stands at 4,327 this morning) is acting like a magnet…and it will reach level before it takes any kind of breather. In other words, even though it would be normal and healthy for the market to see at least a mild pullback at these levels, it doesn’t mean we’ll get one immediately. (First chart below.)

However, even if we do get a pullback soon, it should not pose any serious problems for the market…unless the reverses in a dramatic way (like it did after the 50% retracements in 2001 and 2008). Again, any mild pullback would be seen as something that was merely digesting the fabulous gains of the past two months…...To be honest, we think that we could still get that kind of pullback soon. WMT’s better-than-expected earnings report is something that has helped the futures claw back some of their overnight weakness, but not much. One would think that the positive news out of such an important consumer related stock would have had the market pushing much higher in pre-market trading. The fact that it is not right now on such good news…might be telling us that the market is finally getting a bit tired on a short-term basis.

That said, we’re going to have to see the market actually fall for a couple of days before we can say that a normal and healthy breather is taking place. Right now, the “dippers” are buying every little dip…even the intraday ones…so God only knows when they might finally step back.

We get some more earnings from the retailers this week…and we get the retail sales data for July tomorrow. We also get some more housing data later this week. (BTW, HD reported good earnings, but the stock is trading down a bit on news of lower store traffic. Also, the Existing Home Sales numbers just came out…and they were VERY weak.) Therefore, even though yesterday’s volume was extremely low, there are plenty of reasons to think that this will not be a boring week for the stock market.

Things will likely quiet down early next week, but then we get the Fed’s annual confab in Jackson Hole later in the week. At some point soon, the focus will turn to whether Chairman Powell and the rest of the Fed can convince the markets that they are not going to pivot as quickly as the consensus has come to believe over this summer. Of course, maybe the Fed does not want to convince the markets of anything. Maybe they’re quite happy with the fact that the markets are acting quite well in the face of their hawkish rhetoric.

For us, although we’ll certainly be listening intently to what Mr. Powell has to say about rate hikes…and a possible pivot on those hikes…we’ll be focused on what the say about the balance sheet. The size of the Fed’s balance sheet has barely budged at all. In fact, it actually grew last week. Therefore, we wonder how well the market will act if the Fed continues talking in such a hawkish manner…AND they finally begin to shrink their balance sheet.

Shifting gears, after rising above $1,800 for a NY minute last week, gold has pulled back this week. However, there are signs that the yellow metal might finally be gaining some traction. Gold had become extremely oversold back in July…when it was testing the $1,700 level. It’s 5% bounce from those July lows was the biggest one it has seen since its March highs…and it has taken gold above its trend-line from those March highs. Therefore, if this little pullback becomes a minor one…and it gives us a “higher-low”…that is followed by a “higher-high”…it should be very bullish for the yellow metal on a technical basis.

We’d also note that the weekly MACD chart is starting to curl higher for gold. If it can see a positive cross, that should be another reason to think that the trend in gold has reversed to the upside……Finally, we’d point out that the 100-week moving average for gold has been an important one. It provided solid support for the commodity over the last year. It finally broke below that line in a meaningful way in early July. However, it is now back within shouting distance of that 100-week MA. Since “old support” tends to be “new resistance,” any break above that 100-week MA should be very bullish. This will be especially true if a break above that line would include the “higher-low/higher-high” sequence we just talked about…and would also very likely include a positive cross on its weekly MACD chart. (Second chart below.)

This is a long-winded way of saying that gold is starting to look quite interesting on the charts…and any significant move above its 100-week MA (which stands at 1828 right now) should finally be very, very bullish for the yellow metal. As always, we don’t want to get ahead of ourselves. We’ll have to see more upside in gold to turn more positive on the commodity…but the potential is certainly out there.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Aug 16, 2022 — 9:08 AM
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