The S&P 500 Makes New Low In Gold, That Is Not Normal (SPX, VIX, VXX, GLD/SPY)

SPX:GOLD (see below)
Whether you think the S&P is undervalued or overvalued based on whatever financial metric you look at, the S&P in gold terms broke through the March 2009 low today, which is not normal. The fact that they aren't falling in tandem either is also strange. As noted in my previous post, the real value of the S&P 500 has been declining since 1999 when priced in gold. The S&P lost 6.66% today and futures are down another 2.25% overnight. Gold (XAU/USD) keeps making new highs. It is currently up 2.75% at 1,745 and broke above 1,700 last night. The VIX closed up 50% today at 48! What is this implying?

I compared the one month performance of VIX, SPX and VXX (VIX ETF) in a chart below. The VIX is up 200% in a month and a few days ago I noted that VIX futures and VXX volume made new highs. This action is interesting because the U.S. credit downgrade was expected and the ECB is buying Italian and Spanish debt (5Y Italy-German Bund spread was down 22% today). People are saying the sell off could be margin calls or a large hedge fund liquidating (BAC/Bank of America lost 20% today).

The market gave back all of its gains since QE2 started in November 2010, when the Fed started buying $600 billion worth of Treasurys to lower credit spreads, mortgage rates and boost asset markets. There is a Fed meeting tomorrow, so I'm wondering if another round of quantitative easing (QE3) is coming to save the markets? In June at a Federal Budget Committee Conference, hedge fund manager John Burbank of Passport Capital said: "I think the biggest thing is QE2 is ending and many investors assume QE3's magically right around the corner. If it's not, asset prices are going to fall. They are going to fall 10, 15, 20% and then the market can start speculating on QE3." That happened... See charts after the jump.


$SPX:$GOLD (S&P 500 Large Cap Index/Gold Spot) 8/8/2011

Courtesy of StockCharts.com

$SPX, $VIX and VXX in 1-Month - 8/8/2011

Courtesy of StockCharts.com

GLD/SPY is up 21% in a few weeks after it broke above 1.21 resistance, or the freedom level. I thought it was an interesting setup. It closed at 1.49 today on huge strength (RSI 87.52). Is this the beginning of the next leg higher in the ratio. Look at the chart from 2006. I'm wondering when it peaks out.

GLD/SPY (SPDR Gold ETF/S&P 500 ETF)

Courtesy of StockCharts.com

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