Hard to Find Value in the Markets - European Central Bank showing signs of desperation
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Gold, Miners and the PEI Economic Confidence Model
September 3rd-4th is a point of significance in the PEI Economic Confidence Model.
This is an 8.6 year cycle (3140 days which is pi times 1,000) with additional inflection points at ½ and ¼ cycle dates.
Historically, markets that move decisively into the turn dates have the greatest chance of a reversal. Two examples are the equity markets’ crashing into lows on October 19, 1987 (1987.875 on the model) and peaking on July 19, 1998 (1998.55 on the model) prior to the LTCM failure.
Back in the 1980’s we noticed that gold would be buoyant into the major and minor ECM dates (1.075 years) and then decline. I would trade both directions, long into an overbought reading approaching the date, then short and long once again after an oversold low six days or more after the date. In recent years the overbought signals have been occurring earlier and the oversold bottoms are quite
often concurrent with the cycle.
Tuesday’s action (Sept 3rd) is interesting with major movements in the currencies, bonds, energies and metals. . . . right in line with the increased volatility we’d expect to see around the ECM date.
Even if this becomes the long awaited breakout of the base in the DX, as fits the 15 to 17 year cycle we monitor (1981 and 1997 being the latest breakouts), a pause around the ECM date would be nice to see, providing a tradable low in the miners.
The miners continue to perform better than bullion as can be seen in the GDX/GLD ratio. This relative strength should be monitored closely by traders in the coming weeks. Bearish divergences were present in the ratio at the end of the last three rallies (14 to 43 days) coming out of ECM turning points.
View the commentary and ChartWorks by Ross Clark here.