Gold Relative Strength Comparisons
The Relative Strength Comparison [RSC] chart of the S&P 500® Index (:SPX) displays long-term outperformance in gold from 1999 through 2011—fourteen years. The weekly chart displayed in Figure 1 provides a view of the RSC basing action in 2012 that was reversed with a surge in US equities in the first part of 2013. So does this transition lean towards stock strength or gold weakness?
Figure 1 Weekly Chart of Gold with RSC of Gold-SPX
Gold peaked in September 2011 and was neutral to bearish overall for 2012. However, the break of support that occurred earlier this month more clearly puts gold in bearish mode. The bounce currently underway has room to go before testing the levels that supported price for more than a year.
Parts 1 & 2 of this article series displayed the ratio of gold to currencies other than the US dollar. Although a price chart of gold in those currencies is a more complete view of how the asset is faring globally, the RSC relationships are sending a warning for the metal. Currently breaks in gold versus the USD, Swiss Francs, Canadian Dollar and Australian Dollar [AD] are all intact. The strong move down in the RSC of gold to other select currencies (Yen, British Pound & Euro) remains above support for now.
One interesting view to consider tracking is the weekly chart of Gold with an RSC of Gold/AD which is shown in Figure 2. While a break of 2012 support occurred in this RSC, it’s interesting to note the weakness of the measure fell slightly short of a longer-term support line which goes back to 2008.
Figure 2 Weekly Chart of Gold with RSC of Gold-Australian Dollar
Global Equity Markets
Nine major global equity indices with RSC to SPX follow in Figures 3 – 12 including:
- Japanese Nikkei 225
- Indian S&P CNX Nifty
- Singapore Straits Times
- Honk Kong Hang Seng
- Swiss Market Index
- German DAX
- Canadian S&P/TSX Composite
- China, FTSE Xinhua 25
- British, FTSE 100
The US is the only equity market making new highs when viewed in US Dollars. While the DAX & Nifty are near all times highs, it’s quite possible a triple top is being made in those two indices, with the Nifty falling a bit short of that mark for now. This is one piece of a global mixed picture emerging. The two most interesting charts are the FTSE indices (China & Britain) with a potential symmetrical triangle developing on the former and bullish breakout underway on the latter.
Figure 3 Weekly Nikkei with RSC of NK-SPX
The clear relative outperformer right now is the Nikkei 225; however, there remains a reasonable distance overhead for previous peaks to be tested.
Figure 4 Weekly S&P CNX Nifty with RSC of SPCNXNifty-SPX
A triple top may be forming in the S&P Nifty Index. Recent attempts to reach previous peaks have failed.
Figure 5 Weekly Straits Times with RSC of STI-SPX
STI has managed to surpass important resistance at its 2010 highs and has broken through the downward trending RSC line in place just prior to the 2010 peak. There remains room to go before the 2007 peak is tested.
Figure 6 Weekly Hang Seng with RSC of HHA-SPX
The Hang Seng remains weak reative to US equity markets; however, a bullish breakout may be underway.
Figure 7 Weekly Swiss Market Index with RSC of SMI-SPX
The Swiss markets have cleared the 2010 peak and have recently begun to outperform US equities.
Figure 8 Weekly DAX with RSC of DAX-SPX
A triple top may be forming in the DAX.
Figure 9 Weekly TSX with RSC of TSX-SPX
SPX is more clearly outperforming TSX which has failed to move above its 2011 or 2008 highs.
Figure 10 Weekly FTSE China 25 with RSC of FXT-SPX
A potential symmetrical triangle in the making for the FTSE China 25 Index, my preference is with the dashed support line which is extended left.
Figure 11 Weekly FTSE 100 with RSC of FTSE-SPX
The breakout from a continuation symmetrical triangle will be detailed Monday, 4/29/2013.
In general, SPX has been a relative outperofrmer compared to other global equity markets, as well as gold. While there are some bearish warnings in a few indices, there are also some bullish breakouts that have been helped in part by central bank activities that have impacted local currencies. As an off-shoot to this article series, chart patterns for a few of these indices will be explored in the week ahead.
Clare White, CMT
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site
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