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.

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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.

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

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

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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).

UPDATE

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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