The report out of Bloomberg that Merkel's government will not stand in the way of any plans by the ECB and Draghi to directly buy government bonds appears to be lending marginal support to to the U.S. stock markets. That said, this advance (outside of the 2% gain) does not appear particularly strong. The volume is coming in on the light end (estimated to finish in the range of 110 to 140 million shares on the SPY) while the intraday technicals appear weak.
You will notice that the stochastic, A/D line, and MACD show little conviction to the upside move, and point out that the MACD is diverging from the price trend. That said, if the SPY were to close above the $139 price level it would suggest that move to next swing point, a mere two points higher.
I also think we are seeing doubt that any bond buying plan will work. Just look at the currency markets. The Powershares US Dollar Bull Index (ticker UUP) is down more than 1% in mid-day trading, but on low volume.
The mirror of this is the Currencyshares Euro Trust ETF (ticker FXE), which is up more than 1.5%. The FXE is moving up into the last swing point on weaker volume (an estimate of 1.2 to 1.5 million shares versus 2.1 million shares seen on July 27)
This report also begs the question of how the ECB will fund the purchase of sovereign bonds. The rescue funds are nearly tapped out, and there has been a reluctance from politicians to increase the size of the bailout programs. Does this mean that the ECB will hit the return key on the computer and begin printing Euros? This is still to be seen.
Either way, I thought it would conducive to update my gold stock timing indicator. This indicator compares the price of the Phily Gold/Silver Sector Index (ticker XAU) to the the standard deviation of the price of gold relative to money supply. Historically, buying opportunities on the XAU (and precious metal stocks in general) present themselves when the standard deviation falls below -1. The below tables show the performance averages of the XUA over a one week period, three months, six months, one year, and two years since 1981.
On average, the performance in subsequent periods following a standard deviation of the price of gold relative to money supply of -1 and -2 far surpasses the respective average buy-and-hold performance. The performance figures appear robust. Just look at the minimum performance seen across all periods. Buying precious metal stocks when the standard deviation falls below -1 reduces your downside potential, at least in a historical context. In addition, the Sharpe ratios (average return divided by standard deviation of the returns) is much improved across all time periods. Here is the data represented graphically.
The current standard deviation is -1.12.
You will notice that the stochastic, A/D line, and MACD show little conviction to the upside move, and point out that the MACD is diverging from the price trend. That said, if the SPY were to close above the $139 price level it would suggest that move to next swing point, a mere two points higher.
I also think we are seeing doubt that any bond buying plan will work. Just look at the currency markets. The Powershares US Dollar Bull Index (ticker UUP) is down more than 1% in mid-day trading, but on low volume.
The mirror of this is the Currencyshares Euro Trust ETF (ticker FXE), which is up more than 1.5%. The FXE is moving up into the last swing point on weaker volume (an estimate of 1.2 to 1.5 million shares versus 2.1 million shares seen on July 27)
Either way, I thought it would conducive to update my gold stock timing indicator. This indicator compares the price of the Phily Gold/Silver Sector Index (ticker XAU) to the the standard deviation of the price of gold relative to money supply. Historically, buying opportunities on the XAU (and precious metal stocks in general) present themselves when the standard deviation falls below -1. The below tables show the performance averages of the XUA over a one week period, three months, six months, one year, and two years since 1981.
On average, the performance in subsequent periods following a standard deviation of the price of gold relative to money supply of -1 and -2 far surpasses the respective average buy-and-hold performance. The performance figures appear robust. Just look at the minimum performance seen across all periods. Buying precious metal stocks when the standard deviation falls below -1 reduces your downside potential, at least in a historical context. In addition, the Sharpe ratios (average return divided by standard deviation of the returns) is much improved across all time periods. Here is the data represented graphically.
No comments:
Post a Comment