Breakout

Gold and Energy Trades Are Over: Technical Analyst

Breakout

The news for the consumer has taken a turn for the worse over the last month or two. Consumer spending in July was up a less than expected 0.1%, the retail earnings picture was ugly and even the once booming homebuilding recovery has taken a break with the SPDR Homebuilders ETF (XHB) pulling back more than 10%. At the same time gold prices have benefited from fears over Syria and confusion over the FOMC's plans to rocket up nearly 20% causing the once-chastened gold bugs to start talking about a return to the yellow metal's glory days above $1,900/oz. just two years ago.

As a market technician Craig Johnson of Piper Jaffray doesn't really care about the headlines as long as the asset prices themselves are holding their support levels or staying below resistance. From that point of view Johnson says the markets are giving investors an outstanding chance to make a graceful exit from gold and start getting long some cyclical plays in the equities.

Related: Time to Brace for Correction?

"From a chart perspective the longer term trends still look intact to us. We still think there's more upside to be had in names such as Ford (F) and a bunch of the housing stocks," says Johnson in the attached clip.

As for gold Johnson doesn't have many good things to say. "The trade in gold is over and complete," he says before slapping on a $1,050 price target; some 25% below where gold is trading at the moment. For bearish chartists the picture on gold is no different than the vast majority of bubble assets in history. The price tumbles then bounces sharply, luring in one last round of true believers before resuming the bigger downward move.

Once those recovery bounces lose steam history says things get ugly fast. Johnson has a 12 - 18 month horizon on the move to $1,050 but his real message is just dump gold and move into the suddenly out-of-favor cyclical plays. He believes the same for the energy sector.

Johnson's Plays:

Buy: Boeing (BA) Borg-Warner (BWA) Ford (F)

Sell: Gold, Energy

More from Breakout:

5 Surprising Stats About Fantasy Sports

J.C. Penney Replaces Bill Ackman With a Hedge Fund Dream Team

Facebook Market Cap Over $100 Billion: Is it Worth it?

Rates

View Comments (81)