Morning Comment: Gold Testing Important Support.

For the first time since the Roosevelt Administration, the stock market fell for the second day in a row yesterday. (Ok, that is a LITTLE bit of an exaggeration, but it sure seems like we haven’t had two down days in a row in a very, very long time!).....Anyway, some of the blame for yesterday’s decline seemed to go the announcement that NYC was shutting down its schools again and going remote...and the rest of the blame went to the increase of Covid cases in the U.S. and around the globe. Of course, that’s ridiculous. The renewed increase in Covid cases did not suddenly become an issue yesterday. It has been with us for several weeks.

The real reason the stock market fell yesterday is that it had become extended on a technical basis...and it was just a matter of time before it began to decline this week. That’s right, sometimes there isn’t any new-news that provides a catalyst for a reversal in the market place (in either direction)...and it sure as heck wasn’t the closing of the NYC schools yesterday. The market had simply become overbought on a very-short-term basis after an 11% rally in just eleven trading days.

However, as we highlighted each of the past two mornings, the decline we’re experiencing right now...which could last for a few more actually bullish for the market on an intermediate-term basis. It is never healthy for a market to rally in a straight line, so it’s positive that the stock market is taking a breather right now. Besides, the S&P 500 could easily fall further without causing ANY technical damage after the 11%-12% rally we have seen over the last 2.5 weeks. In fact, it would have to fall more than 5% from its recent highs before it would test anything that would even be considered a key support level. (The 50 DMA is about below 5% below the recent highs.)

Don’t get us wrong, we’re not calling for a 5% decline. We think it is more likely that it will be in the 2%-3% range. We’re just trying to point out that any pull-back over the very-near-term would be normal and healthy...and would not do much damage to this current rally...even if it fell a bit more than our the 2%-3% we’re looking for right now.

There really isn’t a lot more that we can add to our near-term call for the stock market. This pull-back is indeed what we have been expecting...and we think it could/should last a bit longer (and it will still be quite healthy if it did exactly that). This pull-back is just what we needed to digest the recent gains...and allow the market to rally further as we move towards the rest of this year (and probably in to the very beginning of next year).

With this in mind, we want to talk about a different market this morning...the gold market. While many people have been focused on Bitcoin this week (and understandably so), gold has been sliding lower. More importantly, the yellow metal is now very close to testing a key support level. We’re talking about the lower line of a “descending triangle” pattern. As the charts below show, that line comes in at the $1,850 level. Since gold has already broken well below its trend-line from March, any move to an important “lower-low” (below that “descending triangle” pattern), is going to be quite bearish for the yellow metal...probably for the rest of this year.

We remain bullish on gold on a long-term basis, but traders and investors need to know that if (repeat, IF) it breaks below $1,850 in any meaningful way, gold is almost certainly going to see a quick decline down to its 200 DMA (below $1,800). In other words, we’re not looking for a major bear market in gold if it cannot hold its key support level. However it should fall solidly into correction territory if it cannot hold $1,850...and fall below $1,800...before it regains its footing (and its long-term bull market).

We’ll finish by saying that the most recent decline in gold has not coincided with a rally in the dollar. However, if the DXY dollar index can hold the 92 level again and bounce it has on many other occasions over the past four’s going to exacerbate any decline for gold.

Matthew J. Maley

Managing Director

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 Nov 19, 2020 — 8:11 AM
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