Traditional technical analysis would say the S&P 500, represented here by the SPDR S&P 500 ETF Trust SPY, has failed again near new highs. Gold, on the other hand, represented by the SPDR Gold Trust GLD, is breaking out to the upside. Therefore, it is a no brainer to sell stocks and buy gold. Correct?
I get a very large number of emails. The emotional reaction of many investors is the same. To all of this, I would say, “not so fast.” There is another side to this involving British people voting to remain in the European Union (EU). If this comes true, stocks may rally and gold may fall.
Let us bring a little more sophistication, and look at the charts in terms of probabilities. This is an important time to remind investors of what around here has come to be affectionately known as Nigam’s Second Law of Investing, “No one knows with certainty what will happen next.” Therefore, the only way to do a reasonable analysis is to model in terms of probabilities.
Please click here for the annotated chart of S&P 500 ETF SPY.
Please click here for an annotated chart of gold ETF GLD.
For the sake of readability and easy understanding, charts show simplified versions of the charts actually used for analysis.
Brexit probabilities
Polls had been running about even on both sides…Read more at MarketWatch
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