The Fall Forecast

Back in May I predicted that the summer would see sideways or downward trends in major stock market indices and a rise in the DEX bond index. I based my prediction on the long-term (5 year) charts and the 200d and 50d moving averages. My prediction was accurate. So, what do these same long-term charts show us now?

The S&P500 (^GSPC) chart reflects the recent volatility and losses that have infected all stock markets this summer. Whereas it was relatively easy to see a convergence in the moving averages back in May, it is not so easy to see the forward trend now. If we were beginning to see a recovery we would see the 50d average moving upward to cross the 200d: this is NOT evident. This would require the index to move above 1,240 (an 8% increase), which does not seem to be on the cards right now.


The TSX (^GSPTSE) looks pretty similar to the S&P500 with no discernible upward trend. It is interesting to note that the TSX is slightly closer to trending upward: a 5% increase would see the index cross its 50d moving average. Also, the MACD histogram is closer to positive territory.


The DEX index (XBB.TO) chart is similarly ambiguous when it comes to predicting the inevitable downturn in bond values.


The most interesting chart is that for gold, represented by the GLD ETF (GLD). Gold shows no signs of slowing it’s recent gains.


The bottom line is that, while the rule of opposites would suggest a reversal, the charts do not show it happening any time soon. This supports keeping my bond holdings steady at 30% and my gold relatively holdings high (but under 10% per my investment policy).


Writing today, December 30th 2011, this prediction was correct: there was no reversal of previous declines. There has been only volatile, sideways trading. Hopefully 2012 will be better!


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