Thursday, May 26, 2016

The Johnny Funk: The Gold and Equities Swan Dive

The movements of gold and equities during the start of an equities bear market are almost like a well timed dual partner high dive.  I went back to the 2008/9 crash and saw the phenomena.  Then I started wondering if this happened during other bear markets. I was impressed with what I saw.  So, now I call it the "Johnny Funk". But, hey, maybe it's all a coincidence...

I put this together a few months ago.  I was intrigued with the relationship between gold and the equities market:


Now, please keep in mind this is just my observance and it may or may not be correct.  I may be way off mark!!  Having said that, enter at your own risk!

Let’s compare this to the other bear markets before 2008/9.

First stop: 1987

I thought I would look at the other stock crashes and see if the same thing happened.  So, we first get in our WayBack Machine and look at the crash of ’87.  However, the ETF GLD was not around then.  Another fund was, though, called USERX which is a gold and precious metals mutual fund.
S&P500 is the bottom blue. USERX is the top red line.  What do you notice?
1               
          1) Gold rises first doing so at a rapid pace.

          2) Rising stock market peaks

          3) Gold falters and takes a nose dive.  Technically, it breaks down before the stock market drops.
          
         4) Gold continues to breakdown and reaches its low before the stock market reaches its low.
          
         5) Then the stock market makes its low.  In this case, gold tries to keep going up, but there’s too much in the way. Gold retreats from the pop up from the drop and continues its bear market.

Next stop: 2001

This chart is complex, coverinig a much longer period of time – it took 2 years for the SPX to bottom out.  In fact, it goes on for so long you could probably break it down even further and see the same pattern along the way.  There was no GLD ETF in the year 2000 so I had to break it up and use a different gold chart:

The $GOLD chart is on top and the S&P500 is on the bottom.

1)  Gold rises first, doing so at a rapid pace.  (I should note that gold was in a bear market through this time.  It was also higher a few weeks earlier…but we look at the closest rise in gold to the market top).

2) Rising stock market peaks

3)  Gold falters and takes a nose dive.  Technically, it breaks down before the stock market drops.

4) Gold continues to breakdown and reaches its low before the stock market reaches its low.

5)Then the stock market makes its low.  Unlike 1987, gold recovers nicely and starts on one of the most amazing bullmarkets ever.











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