Despite European troubles and disappointing news from new home sales, the major indices rallied, wiping out Monday’s setback and putting the S&P 500 just 1.38 points from its all-time high.
An increase in durable goods orders provided a pleasant surprise, and the Case-Shiller 20-city Home Price Index rose more than expected. But consumer confidence fell sharply, a direct result of worries over tax increases and government spending cuts.
Defensive sectors performed best Tuesday, with health care, utilities and consumer staples leading the list of gainers.
At the close, the Dow Jones Industrial Average was up 112 points to 14,560, the S&P 500 rose 12 points to 1,564, and the Nasdaq gained 17 points at 3,252. The NYSE traded 558 million shares and the Nasdaq crossed 319 million. Advancers outpaced decliners on the Big Board by 2.3-to-1, and on the Nasdaq, advancers were ahead by 1.4-to-1.
Everyone is bearish on the precious metal stocks, especially gold. When everyone is bearish on an investment, it could mean that there is no one left to sell — and that’s when bottoms are made.
Gold, as represented by the SPDR Gold Shares (NYSE:GLD), is in a pronounced downtrend with resistance at $157 and support at $151. The chart looks horrible until you view the whole formation, which is a descending triangle. Descending triangles often form bottoms. The one-year support line at $151 could turn into a major bottom.
Also, note the declining volume with spikes of buying and a MACD that is in the bullish zone — both indications of support.
The chart of the iShares Silver Trust (NYSE:SLV) looks somewhat like gold except that it is trading in a very clearly defined bear channel. But it too has a one-year support line, volume is declining, and its MACD has flashed a buy signal.
Conclusion: We all know the Wall Street saying, “Sell in May and go away.” May is still a month from now; however, it’s not too early to consider the possibility of a summer correction, especially after a rise of almost 10% in the first quarter of the year.
If a correction was to occur, money would seek the cheapest asset. Could it be that the precious metals will become the object of a spring/summer buying spree? Maybe. But please don’t go out and buy gold and silver today.
Both charts are bearish, but both are approaching major support zones. It is time to think and plan, rather than act. Like the great hockey player Wayne Gretzky said, “Play where you think the puck is going to be.”
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.