The stock market put on a hard bounce yesterday, but little has changed throughout the spectrum of indexes and indicators. The Dow and Tranny are trying to get the traditionalists in the Dow Theory community excited, but NDX, BKX, RUT and several others are simply bouncing as things stand now at 6:07 US Eastern. NDX for example, at 3613 is still within the 3600 +/- bounce objective we laid out weeks ago.
After Retail Sales at 8:30 we may have a different story, but as of now nothing has changed in the bull/bear mix as a result of yesterday’s action.
As we reviewed in an NFTRH update, the VIX has gone back to sleep and is in a support area. As for its partner in market anxiety, the Gold Silver ratio (GSR) got bonked but is unbroken.
Market bears need the GSR to hold the MA 50′s and bounce again. A further decline would start rolling MACD down and drop RSI below support. If silver leads gold a global party (likely of the inflationary kind) could whip up (see China, see regulatory moves). Copper and its miners went up big yesterday, by the way.
If however GSR holds a higher low and goes up again, it not only keeps its uptrend going, but it would start to think about breaking a resistance zone on the big picture. That could be the straw that finally takes liquidity out of the camel’s back (they carry water in those humps, don’t they? Okay, it’s a weird analogy, I get it).
The weekly chart shows the details.
A gently rising GSR has attended a Goldilocks environment for stocks. The best environment for a global asset party is shaded green. That was the result of QE2 as silver ripped higher vs. gold. The reason I think that may not be in the cards again is because it was not only a bubble blow off in silver, it was a blow off in the entire ‘inflation trade’.
Until it proves otherwise by breaking down, we should probably be asking what the implications are of a continued rise in gold vs. silver.
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