Strong Bear Market Signal

I am back after a few days working on a construction project that I will share some information on later.

From the Wall Street Journal:
Read the whole article here.

Stocks fell on Monday in a late-day selloff that took the Dow Jones Industrial Average below its lows of the May 6 "flash crash."

The Dow ended down 115.48 points, or 1.2%, at a seven-month low of 9816.49 and below 9869.62, its low-point of the May 6 slide. That day, buyers rushed into the market at that level, helping pare a 1,000-point drop to a decline of 347.80 points.

But on Monday, no such buying appeared. The Nasdaq Composite fell 2%. The Standard & Poor's 500-stock index slid 1.4%.

"Global tensions are at a pinnacle," said Mike Daly, gold specialist at PFGBest in Chicago. That has prompted investors to move money into "tangible, safer assets."'

As part of that move, gold soared, ending with its biggest one-day gain in almost four months. Gold also began the day quietly. But at around 10 a.m., a sudden wave of buying drove the metal up by 2% within an hour, pushing it toward record Comex highs reached in mid-May.

Gold has been used by many investors as a refuge for everything from the slumping euro to inflation fears. On Monday, traders speculated that an investor trying to hedge against losses in euros may have placed a big bet that shot the metal higher.

Gold for June delivery rose $23.10 an ounce, or 1.9%, to $1,239.30. In euro terms, gold was trading up 4.1% to about €1,040 an ounce, a new record, in late New York electronic trading.


As anticipated, the market is not liking the growing sovereign debt problems in Europe, and as result, movement into bonds and gold is accelerating.

I expect we will see new highs in gold soon as investors get a bad case of indigestion from sovereign debt excesses.

Will there be a relief rally?  I think it is likely that the S&P will move higher and test the 50 day MA before it begins the next big leg down (notice the Death Cross that appears to be forming).

A quick review of various indicators show a strong case for a major bear market:

Semiconductors ($SOX) have moved below their 200 day MA.

NYSE closed at 6512.  The 200 day MA is 7112 - a 600 point difference!
Additionally, the NYSE looks like its 50 day MA will soon cross the 200 day MA - The Death Cross.

5 year T Bill yield are falling and, like the NYSE, the 50 day MA is about to cross the 200 day MA - This is the second Death Cross indicator.

Crude oil at $71.09 has been unable to break through the 200 day MA since May 12th.  Is this a Death Cross in the making?

Gold hit $1240 today.  It has not dropped back to the 50 day MA since the end of March and seasonal weakness typically begins in May or June.  This is a strong indicator of risk aversion.