Bitcoin VS Gold VS S&P 500

How does gold and its digital competitor Bitcoin relate to each other?

Gold is a traditional store of value, while Bitcoin from a conventional standpoint is highly risky. Even though the latter was nicknamed "digital gold," we can see from the chart below that it does not act like one.

Which opinion do you support?

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Gold BTC USM2 Real IR Quarterly

Source: TradingView

In the above quarterly chart, I combined 5 items:

The gold price is in black bars on scale A. The Bitcoin price is in orange bars on scale B. The U.S. money supply indicator M2 (M2) is in histogram on scale C. The red line represents the U.S. real interest rate (RIR) on scale D. There is a 2-year correlation coefficient of Bitcoin to gold (blue) in the sub-chart. Continue reading "Bitcoin VS Gold VS S&P 500"

Gold/Silver Ratio Shows S&P 500 Is On The Edge

It’s time to update the S&P 500 index chart as it emerged inch-perfect since the last update in July.

SP500 Weekly Chart

Source: TradingView

To refresh your memory, I kept the main paths untouched and added new crucial highlights.

The idea of the upcoming breakout of the Falling Wedge pattern (blue converging trendlines) was posted right on time on the Blog as it played out instantly. Indeed, the Bullish Divergence of the RSI indicator with the price chart played out as planned supporting the breakup of the pattern’s resistance.

The majority of readers got it right choosing the red path as a primary scenario. The price action has been amazingly accurate in the 61.8% Fibonacci retracement area where the price failed to overcome the barrier and reversed to the downside from the minor top of $4,325 following the red zigzag.

I added the 52-week simple moving average (purple) to show you how strong the double resistance was at the $4,347-$4,349 level.

The next support is located in the valley in June at $3,637. Continue reading "Gold/Silver Ratio Shows S&P 500 Is On The Edge"

Window of Opportunity - Valuations Below Pre-Pandemic Highs

Window of Opportunity

Six months of relentless and indiscriminate selling has roiled the markets. This selling has reduced the frothy pandemic induced run-up in stocks back to pre-pandemic levels. In many cases stocks are trading well below the pre-pandemic highs.

Stocks are now presenting a window of opportunity for long-term investors at this juncture. With the collective P/E ratios reverting to its historical mean, oversold conditions at extremes and the inflation picture at a potential inflection point may combine to be a back half of the year reprieve.

This window of opportunity may not last too much longer based on historical bear market metrics so pounce and pounce harder if the markets slide further.

Mid-June Flushing?

Many commentators in the investing circles stated that a final washout in the market was likely needed prior to moving higher in any meaningful way.

Mid-June saw its worst weekly performance since March of 2020, dropping 5.8% for the S&P 500 while taking its overall decline to ~24%. After this brutal week, there hasn’t been any stock or sector that has been immune to the breadth of participation in this sell-off. As such, the market has now registered abnormal extremes in selling and oversold conditions.

Is this the washout that was needed to arrest the selling pressures in this market, and will this be an inflection point? A battery of indicators suggest that the markets are close to making a meaningful move higher very soon.

Inflection Point?

The percentage of S&P 500 stocks trading above their 50-day average hit a level that can’t go any lower as seen over the past 20 years. This level indicates extremely oversold conditions (Figure 1).  

% Stocks Above 50-Day Moving Average

Figure 1 – Assessing overbought and oversold conditions via the percent of stocks relative to its 50 day moving average (adopted from CNBC).

It’s noteworthy to highlight that fewer than 25% of stocks are still within 20% of their 52-week high. The only times this was worse was the Covid crash and the 2007-2009 financial crisis. Over 42% of S&P 500 stocks hit a new 52-week low, only the tenth time since 1985 this total exceeded 40%.

The average Nasdaq stock has undergone a 50% drop from its high. The S&P 500 now trades at a level first reached more than 16 months ago in early 2021. This move negates the post-Covid advance in equity markets. The correction waves in February 2016 and December 2018 both bottomed at levels first reached nearly two years prior. Thus, these markets are reaching the point where the past two years of appreciation has been erased.

Stocks Are Looking Cheap

The current collective P/E a ~16, well off the pre-Covid high and not far above where it has bottomed in prior severe sell-offs in 2016, 2018 and 2020 closer to a P/E of ~14. The equal-weight S&P 500 finished mid-June at 13.1-times earnings. It’s noteworthy to point out that the markets bottomed in December 2018 at 12.9 and in March 2020 at 11 (Figure 2).  

SP500 Forward P/E

Figure 2 – Assessing P/E ratios over the past 10 years (adopted from CNBC).

Conclusion

The relentless and indiscriminate selling has reduced the frothy pandemic induced run-up in stocks back to pre-pandemic levels. Stocks are now presenting a window of opportunity for long-term investors at this juncture.

With the collective P/E ratios reverting to its historical mean, oversold conditions at extremes and the inflation picture at a potential inflection point may combine to be a back half of the year reprieve.

The percentage of S&P 500 stocks trading above their 50-day average hit a level that can’t go any lower as measured relative to the past 20 years. This level indicates extremely oversold conditions.

Fewer than 25% of stocks are still within 20% of their 52-week high. The only times this was worse was the Covid crash and the 2007-2009 financial crisis. Over 42% of S&P 500 stocks hit a new 52-week low, only the tenth time since 1985 this total exceeded 40%. The average Nasdaq stock has undergone a 50% drop from its high.

Bank of America’s Bull & Bear Indicator, which captures fund flows and other market-based risk-appetite measures, is well in the fearful depths that typically imply a buying opportunity. During prolonged stressed periods (i.e., 2000-’02 and 2008-’09) bear markets had this gauge persistently stuck at these low levels while prices continued to trend lower.

This window of opportunity may not last too much longer based on historical bear market metrics so pounce and pounce harder if the markets slide further.

Noah Kiedrowski
INO.com Contributor

Disclosure: Stock Options Dad LLC is a Registered Investment Adviser (RIA) firm specializing in options-based services and education. There are no business relationships with any companies mentioned in this article. This article reflects the opinions of the RIA. Any recommendation contained in this article is subject to change at any time. No recommendation is intended to constitute an entire portfolio. The author encourages all investors to conduct their own research and due diligence prior to investing or taking any actions in options trading. Please feel free to comment and provide feedback; the author values all responses. The author is the founder and Managing Member of Stock Options Dad LLC – A Registered Investment Adviser (RIA) firm www.stockoptionsdad.com defining risk, leveraging a minimal amount of capital and maximizing return on investment. For more engaging, short-duration options-based content, visit Stock Options Dad LLC’s YouTube channel. Please direct all inquires to [email protected]. The author holds shares of AAPL, ACN, ADBE, AMD, AMZN, ARKK, AXP, BA, BBY, C, CMG, CRM, DIA, DIS, FB, FDX, FXI, GOOGL, GS, HD, HON, IBB, INTC, IWM, JPM, MA, MS, MSFT, NKE, NVDA, PYPL, QCOM, QQQ, SBUX, SPY, SQ, TMO, and V.

$4550 Is Critical Resistance For The S&P 500

Two main factors are driving the rally in the US stock markets recently; retail traders buying the dip, and Q3:2021 earnings data is starting to shake away the concerns that resulted in the recent market rotation. Combine these activities with the start of the Christmas Rally phase (which usually starts sometime after mid/late-October and carries through into early January), and we have the making of a moderately strong potential price rally in the US major indexes over the next 60+ days.

The $4550 Level Is Critical Resistance For The S&P 500

I’m highlighting this ES Daily and Weekly chart pattern, below, to share with you how important it is to see the ES break above the $4550 level – the past high price peak. If the markets are going to start a new rally headed into the 2021 Christmas season, then we need to see the ES continue to rally and break above the $4550 level. It is critically important that price breach the $4550 level and attempt a strong move higher if this bullish momentum persists.

The ES has already broken above three previous Stand-out Highs, drawn in MAGENTA. This shows the strength of a bullish price advance and building bullish price momentum. Yet, the final price high, near $4550, is critically important from a technical standpoint. Continue reading "$4550 Is Critical Resistance For The S&P 500"

Visualizing Correlation: Gold Vs. Other Instruments

Some of our regular readers kindly shared their opinion about the gold market correlation with other instruments in the comments section under my previous post. I think it could be interesting for all of us to see what is going on there if we check the correlation between gold and other instruments.

I prepared the visualization of it for you below. The dollar index and the 5-year TIPS (Treasury Inflation-Protected Securities) were named in the comments, and I will add two other top instruments, so please stay tuned.

Let’s start with the Dollar Index (DXY).

Correlation
DXY: blue, left scale / Gold: orange, right scale / Correlation coefficient: turquoise, sub-chart - Chart courtesy of tradingview.com

For more than 20 years, these two instruments were mostly in a negative/mirrored correlation. It just changes from extremely negative to zero correlation with rare spikes into positive territory. Continue reading "Visualizing Correlation: Gold Vs. Other Instruments"