Sunday, June 3, 2012

GLD, SPY, GLDSY React to Eurozone Crisis, Growth Slowdown (Charts)

After my quick update on GLD and SPY on March 15, it looks like SPY's breakdown was a decent signal for further downside, and GLD's support level ended up being rock solid for a bounce (for now). Of course, all of this set up GLD/SPY to break through its long-term downtrend line after a retest. The setup actually looked perfect on the GLDSY chart (Nasdaq OMX Alpha GLD vs. SPY).

There was downside risk for GLD, SPY and GLD/SPY all throughout March and April; but now with the possibility of Greece exiting the eurozone, banks going under in Europe, and the possibility of more bailouts (globally) and the Fed (*updates 6/4: primary dealer banks, Gartman) and ECB printing money, it made sense that GLD rallied (and broke out relative to SPY) in this deflationary, zero bound environment with growth slowing, in my opinion. But, can this gold rally last?

I remember Ray Dalio, who runs the $120 billion hedge fund Bridgewater Associates, was quoted in Barron's on May 21 saying that gold could be a victim of forced selling in the eurozone in the short term. Here are quotes from the Barron's interview:

Are you still a fan of gold?

Longer term, yes. It could temporarily be a bumpy ride because Europeans will have to sell gold in order to raise funds because they are squeezed. Most people should have in the vicinity of 10% of their assets in gold, not only because I think it will be a good investment longer term, but because I think it is a very effective diversifier against the other 90%.

And are you treating it as a proxy for eventual inflation?

I'm treating it as an alternative currency. The big issue is debtor-developed countries, the U.S., Europe, and Japan, all have a lot of debt and will have to print money or they will have credit problems. I don't want to have all of my money in those currencies."


I'd like to see GLD attempt to make a new high to risk a $15 billion dollar upside trade, or play a potential breakdown at support. If you watch moving averages, on Friday, GLD pierced through 50 day moving average resistance and SPY pierced through 200 day moving average support. In another post I will break out market ETFs and correlations like this post.

On SPY's chart you can see potential support levels below, but I can't really tell you if they matter until they get tested. The S&P is still trending down at the moment; but, if you remember, Tom McClellan, a well known technical analyst and market timer, said a few months ago that last year's Eurodollar COT chart was predicting that the market would correct until June and then rally hard through the rest of 2012. We shall see. Watch the euro (eur/usd, eur/jpy), German bunds and U.S. Treasuries as well to measure market risk. Either way, the next big moves will be related to major eurozone catalysts ahead (1, 2, 3). And then we have the election and fiscal cliff to deal with.


GLD (SPDR GLD ETF)


SPY (SPDRs S&P ETF)


GLDSY (Nasdaq OMX Alpha GLD vs SPY)
Chart source: FreeStockCharts.com

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