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Saut:  “We’ve pretty much been trapped on the S&P between 1,813 and 1,851.  We’ve tried a couple of times to close out above that January 15th closing high of 1848 but we have been unsuccessful so far in doing that.  The internal energy in the markets is indicating a potential for a pullback here.  The optimism in terms of counting bulls vs bears has been pretty optimistic, which is a negative for stocks....

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“We already had a 6.2% pullback starting in late-January, into that February 3rd low.  And the history of moves like we’ve seen since the June 2012 low of a 40%+ move to the upside without so much as a 10% correction is that some time over a three-month period you do get a 5% to 7% pullback.  And some time over the contiguous twelve-month period you get something like a 10% to 12% pullback.

Quite frankly I find myself in unfamiliar territory because the indicators are mixed and so I am stepping back and letting the market tell me what to do on a short-to-intermediate-term basis.”

Eric King:  “Sentiment today on gold is very close to what we saw at the bottom of the 2008/2009 collapse low.  We only have 3% more bulls today vs the 2008/2009 low, but gold is well over $600 higher in price.  I’m just curious what your thoughts are on gold and the bearish sentiment that is still in place, especially after the recent rally.”

Saut:  “We wrote about gold in December thinking it was making a tradable low.  Whether we go back down and test that low I’m not really sure, but my hunch is you have put in the cycle low on gold.  Whether gold continues to trade higher in the short-term remains to be seen.  It’s had a pretty good run.  We could be at a short-term high here, but longer-term I think gold trades higher.

As far as sentiment goes, I find that fairly typical.  When the stock market bottomed in 1974/1975, the big mutual fund craze that had built up in the late 1960s came to an abrupt end and people started liquidating their mutual funds in 1974, 1975, and 1976.  Quite frankly, there were net redemptions all the way into the mid-to-late 1980s. 

So psychology takes a pretty long time to turn.  If you’ll recall, Eric, back when gold was bottoming in the early 2000s, gold made a huge move off that $250 low before anybody believed gold was in a structural uptrend.  So the fact that we’ve had a pretty decent rally here and people don’t believe in the rally, I think that only adds to the bullish argument.”

Eric King:  “What about the gold chart you have been updating KWN on from time-to-time?  What does that gold chart look like?”

Saut:  “That chart has essentially shown red since the 4th quarter of 2012.  But the chart has just gone green for the first time in over a year, giving us a buy signal on gold (see chart below).  Now, keep in mind that this does not get the bottoms or the tops, but once it starts trending it tends to keep you in the move.  It will be very interesting to watch this over the next couple of weeks to see if this green extends on the upside.”

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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