Either the SP500 ETF (SPY) Goes Up OR the Gold ETF Does But NOT BOTH
09-03-2010: An Article About the SP500 ETF (SPY) and the Gold ETF (GLD ETF) Correlation
Why should it be one or the other that rallies, either the SP500 ETF, SPY or the GLD ETF, but not both?
Prior market correlations do not work every time, BUT...
I'll tell you what my thinking is and you can decide yourself.
Many seem to be expecting a gold breakout. The gold
bulls sound very confident. This may be the time to be contrarian.
Gold has been negatively correlated with stocks (SP500 ETF SPY) since the July low. It makes good sense that should continue. Why?
Because the risk trade is SUPPOSED to be coming off a bit now right?
The dollar index is falling a bit today (as of around noon ET!).
But gold selling is a bit brisker than dollar selling today. Check out my prior articles on the "Sample Issues" page if you don't fully get this. If you do not, you may lose money. It's an important concept.
If dollar weakness is minimal, but gold selling is brisker due to the safety trade coming off, then GOLD FALLS. The dollar may be slightly less weak than gold is today because the US economy is showing signs of some sort of life above zero! Stronger economies mean stronger currencies in general.
I expect that gold or the stock market (SP500 ETF SPY) will show us where the other is headed. If you see stocks rally further, gold will be falling in my opinion. My opinion changes on a clear breakout to new highs in GLD.
And I start buying more.
CONCLUSION: Either stocks (SP500 ETF SPY) will continue to rally and gold will continue to
pull back as they did this morning, confirming my prediction in last night's
newsletter OR gold is going to break out. Follow the numbers and you'll
WHAT SHOULD YOU CONSIDER DOING?
Consider averaging out of gold here. It is trickier to average into the SP500 ETF (SPY), here, because it's already run to a major resistance point at 1100 on the S&P 500 and has pulled back in the SP500 ETF as well. So we have to first see if we can get through there. A close above there will likely bring us at least back to the August high.
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