Gold Hit A New 2011 Low & Is Officially In A Bear Market

Thursday, December 29, 2011
Stock Market Commentary:

Stocks opened higher after the latest round of economic data was announced and an Italian bond auction came in below the worst case scenario that many pundits were worried about. From our point of view, Thursday marked Day 7 of the current rally attempt which means the window is now open for a new follow-through day to emerge [as long as Tuesday’s (12/20/11) lows are not breached]. The benchmark S&P 500 index continues flirting with positive territory for the year and its 200 DMA line.

Italian Bond Auction, Jobless Claims, & Pending Home Sales:

On Thursday, stocks opened higher as investors digested a host of economic data. Italy managed to sell 7.02 billion euros ($9 billion) of bonds which missed their target but borrowing costs fell which helped allay concerns regarding the health of the Italian government to finance the world’s fourth largest debt-load. In the U.S., the labor department said weekly jobless claims rose by 15,000 to a seasonally adjusted 381,000 but remained under the closely followed 400,000 level for the fourth straight week. The report was a little worse than the Street’s expectations for 375,000. Elsewhere, pending home sales rose by +7.5% in November which easily topped the Street’s estimate and is the highest level in 19 months.

Market Outlook- In A Correction

Risk assets remain under pressure as gold continues trading below its 200 DMA line and other capital markets continue to fall. We find it very disconcerting to see other (leading) risk assets flirt with fresh 2011 lows in recent weeks. China’s Shanghai Composite (normally a leading risk on/off indicator) has fallen below its October low and hit a new 2.5 year low. The euro, which is strongly correlated to U.S. stocks and other risk assets also took out its October low on Tuesday (12/13) which is not ideal. Meanwhile, Gold sliced below its longer term 200 DMA line on on Wednesday (12/14) for the first time since August 2008 (1-month before Lehman failed) and remains below that critical level. Other risk assets such as Oil, Silver, Copper, etc are also under pressure which suggests the global risk off trade is getting stronger.  As an easy reference point, if the benchmark S&P 500 would simply fall to its Oct low, that would be 1074! Sometimes, caution is king.
What we have seen from the October 4, 2011 low was simply an over sold bounce into a logical area of resistance (200 DMA line). Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!