All major U.S. stock indices closed higher for the week of
March 7, with the small-cap-laden Russell 2000 leading the way
with a 1.7% gain. In my
Feb. 24 Market Outlook
, I pointed out that three major U.S. indices -- the Dow
industrials, Dow transports and Russell 2000 -- had yet to set
new 2014 highs.#-ad_banner-#
As of Friday, only one index is left without a new
year-to-date high, the Dow industrials. Overall, this is positive
for the broad market as the various U.S. indices are now for the
most part confirming each other's recent strength. However, the
deeper that we go into 2014 without a confirming new high in the
Dow, the more problematic it can eventually become from a Dow
Theory standpoint. The Dow finished last week at 16,453, just
0.7% off its Dec. 31 all-time high.
Market Momentum Still Bullish, but Becoming a Bit
Feb. 18 report
, I said that the bellwether S&P 500 was at a near-term
inflection point according to market momentum, from which its
larger 2013 advance should resume if still valid. The index set a
near-term low at 1,825 two days later, on Feb. 20, and has since
risen by an additional 3%. Especially when paid attention to at
the right times, these momentum indicators can not only point out
near-term inflection points for prices but can also warn when an
asset or index is getting a bit overextended and frothy.
The blue line in the lower panel of our first chart plots one
such momentum indicator, a 63-day (quarterly) Relative Strength
Index (RSI) based on the daily closing level of the S&P 500
The red highlights on the chart show that, after bottoming on
Feb. 3, quarterly RSI is closing in on an overbought extreme of
59% that previously coincided with or led most of the near-term
U.S. broad market peaks in recent history. This metric is not
flashing a sell signal at the moment, but it is now close enough
to these previous extremes that investors may consider keeping a
closer-than-usual eye on the market for signs of upcoming
weakness or investor fear.
Watch for a Pause in Gold's Recent Advance
Also in my Feb. 18 report, I pointed out that gold appeared to be
in the early stages of a major bullish trend change. Since then,
SPDR Gold Trust (NYSE:
has risen by an additional 1.5%. Our next chart, however, warns
of a potential bump in the road for the recent advance in
before they continue appreciably higher.
The chart, which plots the annual seasonal trend for gold
prices (London PM fix) since 1977, shows that the month of March
is by far the seasonally weakest of the year for the price of the
yellow metal, declining by an average of 1.04% and posting a
negative monthly close 57% of the time.
So, while gold prices still appear to have established a major
bottom at their mid-to-late-2013 lows near $1,200 per ounce, this
37-year metric suggests the potential for a corrective decline
this month as the market digests its recent gains.
This article originally appeared on ProfitableTrading.com:
Market Outlook: 37-Year-Old Trend Says Gold
Prices Will Correct This Month
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