Gold, Gold Stocks and Predicting Trends

I've posted this before but relationships between the XAU, gold and the SPX have been interesting for years. It seems that lagging relative strength and poor performance in the XAU has proven to be a nice market tell of future weakness. We have a little more waiting to confirm any IT downtrend but the XAU has flashed a warning sign for several trading days. The XAU has been especially weak when compared to gold which really validates the signal. I've been using the XAU, gold and SPX relationships for well over a year (quite successfully) to confirm other basic indicators as I would never rely only the XAU/gold/SPX to place trades. I've posted this before here but wanted to restate. There is an ongoing divergence (LT) between gold and the XAU as gold has made a new high while the XAU has failed. Also, on the most recent market swing the XAU has failed to swing higher (while the SPX has) and its relative strength vs the SPX has been woefull. I think this warrants daily observation. Should I see the gold stocks perk up I would immediately change my viewpoint. FWIW the basic market internals have shown some negative divergences at the most recent swing high. The action vs the news is also mildly bearish here, too. I'm watching for groups that are led by global economic strength to bottom first on any market correction. Also, still watching the KRE as it has rallied into major resistance in this area. I'm not a "bear" here...probably more neutral with overall market exosure slightly short.

Edited by Cirrus, 21 January 2010 - 10:45 AM.

Good review and likely right on with the metals v. the miners. The miners are just stocks in rallys and declines, but the divergence is often, not always, important to understanding the whole market. Thanks, Islander.

Edited by lambro, 21 January 2010 - 07:14 PM.