Investors Are Selling Equity Rallies But Not Buying Gold Stocks - CIBC
(Kitco News)- Investors are breathing a sigh of relief after Monday’sacross-the-board 2% rally in equity markets, but one Canadian bank warned thattechnical indicators don’t support higher prices in the long term.
“Distribution forces appear more dominant as global equitiesare showing negative reversals below technical support levels on heaviervolume,” Sid Mokharti, technical analyst at CIBC World Markets, said in areport Tuesday. “In English, investors may have switched gears by not buyingdips and instead are selling strength.”
While investors could soon be piling out of equity markets,that capital might not be making its way to gold or the precious metals miningsector, according to Mokharti.
In an email to Kitco News, Mokharti said that although goldhas some safe-haven appeal, gold stocks have not enjoyed the same benefits,adding that he sees more potential for broader commodities.
“Commoditycomplex as an asset-class is perceived to be a more attractive area of focusfor global managers - this is because other asset-classes may appear to berichly valued compared to a more fairly-valued commodities complex,” he said.“The dominant market forces continue to favor industrial base-metals as astronger offence theme over precious metals as sporadic defensive rotation.”
Gold is seeingsome selling pressure Tuesday after hitting a five-week high overnight. Aprilgold futures last traded at $1,342 an ounce, down 1% on the day.
Turning back to equities, Monday’s spectacular rally helpedthe S&P 500 Index bounce off its 200-day moving average, which it tested onFriday after prices dropped to a one-month low. However, Mokharti said that itcould only be a matter of time before this “line in the sand” breaks.
The S&P 500 has seen little follow-through buyingfollowing Monday’s rally as it currently trades relatively flat on the day at2,655 points.
Mokharti explained that negative momentum overhangs themarket with 95% and 71% of companies that make up the broad-market indexfalling below their 50-day and 100-day moving averages. He noted that a number ofstocks are also seeing new 52-week lows.
In the global marketplace, Mokharti said European stockindexes have already pushed below their 200-day moving averages, “with negativemomentum acceleration.”
“When we net it all up, we find there are more technicalnegatives (than positives) that may mitigate the strength of the support linefrom the rising 200-d average,” he said.
By Neils ChristensenFor Kitco News
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