Tuesday, November 3, 2009

VIX and Gold have Gap Days: Implications

The above charts show GLD and the Chicago Board Options Exchange Volatility Index = VIX. Note that Monday morning, both had a gap opening and stayed above the prior day's trading range all day. The VIX petered out after a huge run from under 20 to over 30 in a week or so on little news. Gold surged dramatically today, along with silver. Treasuries sold off.
More likely than not, the VIX and gold will settle back, though gold has so much momentum, who knows? I did take a modest sum off the table in gold today at the close.
Not shown re the VIX is the sudden turning of the 50 day moving average at a fairly elevated level near 25. If, as I now suspect is more likely than not, this moving average turns up, that would correlate with a correction of stock prices downward.

Furthermore, Treasury prices have trended down and now look to be in a definitive downtrend. With the economic cycle pointing upward (though in a ragged manner), Treasury prices down (yields up), gold and silver surging, a correction in stocks would be more likely than not a buying opportunity for traders.

Longer term, the belief here is that most financial assets are too high-priced relative to the most important price, which is wages. They're just stocks and bonds, after all; they're not gold!
Copyright (C) Long Lake LLC 2009

No comments:

Post a Comment