​         The various breadth measures are recovering from the somewhat oversold levels. For example: there are now over 40% of stocks within the $SPX that are above their 200-day exponential moving average. Also the Bullish Percent index for $SPX is approaching 60%. These are all positive signs, but…
CHART OF $SPX  
         … if it wasn’t for the fact that stocks are in a bear market. My custom market indicator - the Market Breadth Index (MBI), entered into its bearish territory last September and is yet to turn bullish. MBI uses multiple inputs to make its determination of the general market trend with around a 90% accuracy going back to the 1970s. For now, not a single one of those inputs has flipped into the bullish camp.

         Bonds sold-off slightly from the all-time highs set two weeks ago. Still, despite a sizable run-up in stocks from the recently set 2-year lows, bonds are trading very near to their all-time highs. This is indicative of highly elevated levels of fear in the markets. Today TLT had a big gap down and this gap still remain unfilled. This shows that the initiative may have shifted to the bond bears in the short term and TLT still could retest its breakout above the $127 area. Dividends for the various iShares bond funds are also going to be disbursed in the beginning of the month, so we may see some selling around the ex-dividend date.
CHART OF TLT
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         Bullish action in the bonds can further be visualized by looking at a long-term chart of AGG. As can be seen below, AGG is now trading above the breakout to all-time highs. Should stocks come under more selling pressure, AGG could easily run higher to the $114 area (based on the measured move target from the bottom of the pattern)
LONG-TERM CHART OF AGG
​

The US Dollar index held support following a plunge several weeks ago and now rallied to above both the 50-day and the 200-day moving averages. This is undoubtedly due to Euro loosing ground against the dollar.
CHART OF $USD
         Long-term the dollar is bullish and may be poised for a major breakout to new 52-week highs. Please take a look at the chart below. This is a weekly chart of $USD going back 3 years. Notice that for the past year or so, $USD has been tracing out a potential Cup and Handle pattern. Should a breakout above the lip of the “handle” occur above 100.71, we could see a major run of another 9% or so (based on the measured move target from the bottom of the pattern). Any further strength in the US Dollar will weigh on commodities, especially gold.
LONG-TERM CHART OF $USD
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Gold as priced in the US Dollars attracted a lot of attention of late with its purported breakout. The move off the lows in December certainly looks strong, but is it strong enough to reverse the long-term downtrend that gold has been locked in? As of the writing of this blog post on Friday, February 26, 2016 I still don’t think so.
GOLD CHART
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Last week I introduced a Gold Breadth Index (GBI) – a custom gold market indicator that was helpful in determining gold’s long-term trend. From the mid-1980s till now GBI enjoyed about a 75% success rate with 9 out of the 12 major trend signals being very good. GBI also was able to eliminate countless false trend changes (whipsaws). For now GBI has not yet given a bullish signal. It can do so in the very near future because one of the inputs for GBI (gold miners in an uptrend) is getting very close to flipping into the bullish camp.
 
         Even if gold did turn long-term bullish, a throwback to the breakout area around 1190 or even lower is almost a guarantee. An even more bearish scenario could see gold reverse and collapse to new multi-year lows.
LONG-TERM CHART OF GOLD
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Interestingly, silver, which has been rallying together with gold, has collapsed below the last week’s low and is already retesting its breakout. The long-term chart of silver correlates extremely closely to gold. I wonder if silver is the canary in the coalmine and gold is now going to follow in silver’s footsteps lower.
CHART OF SILVER
LONG-TERM CHART OF SILVER
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GDX rallied big together with gold. Again, as of the writing of this post, I am still treating this rally in GDX as a bear-market rally. This could change at any time should the GBI turn bullish, but it hasn’t done so yet. Should gold reverse; we could see a pandemonium out of GDX as traders unwind their long positions. At the very least GDX could retest its breakout by falling to around $17.
 CHART OF GDX
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Oil ($WTIC) was finally able to close above the 50-day moving average this week – an achievement it hasn’t done since November of last year. Next logical resistance level is around $36. A failure there would mean another retest of multi-year lows. Should oil break above that resistance level, there is more resistance around $40-$42. Should that area give, oil could rally higher, but long-term oil is bearish, and I simply don’t see it going above the $50 mark anytime soon.
CHART OF $WTIC
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NATGAS had another bad week and is now in the process of retesting its multi-year lows set in December of last year. If the possible support in the $1.70 area holds, we may see NATGAS bounce again. An alternative scenario is a set of fresh multi-year lows.
CHART OF NATGAS
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That’s it for this week’s market recap,
Best Regards and have another great trading week!
 
Alexander Berger (www.MasterChartsTrading.com)
 

The broader NYSE composite average ($NYA) is already at a strong resistance defined by the January breakdown and the early February rejection in the 9651 area. Again, the 50-day EMA is just above, while index itself is already somewhat overbought. This is a recipe for a drop, should another rejection come to be.
CHART OF $NYA
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In the bond universe things are looking much brighter. TLT hit an all-time high just last week and pulled back. This week TLT retested its breakout above the $128 area, for now successfully. We may get another retest or simply continue higher. The long-term chart shows a potential conservative target for the move to around $138.
CHART OF TLT
LONG-TERM TLT CHART
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         The Dollar Index ($USD) , I believe is still bullish. $USD dropped as low as 95.28 last week, but has bounced since. Especially encouraging is the gap-up on Tuesday, which is still holding. This gap may get retested next week. Should this gap area hold support, next stop would be the 50-day moving average around the $98 area.
CHART OF $USD
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Gold generated a lot of excitement of late, with its possible breakout. I am taking some flak for daring to call this breakout “possible” still. This is fine - I welcome a civil discourse! Please understand, I have no ideological opposition to buying gold, I just want my investments to be bullish when I am accumulating them. If/when gold becomes bullish; I would happily be looking for buying opportunities within the bigger uptrend. But as of the close on Friday, February 19, 2016, I think gold is still in a bear market.
         Lets take a look at some of the charts then. Gold gained a little over 21% from the multi-year lows set in early December until the February 11 peak. This is indeed a powerful move, but we had similar powerful moves in the past during the current bear market in gold dating back to 2012.
GOLD CHART
LONG-TERM CHART OF GOLD

Looking at the very long-term correlation charts of gold to the $USD, we can see a rather strong negative correlation between the two. When gold goes up, the dollar is dropping and vice versa, when gold is dropping, $USD is pushing higher. Its possible that the recent price run-up in gold was simply due to the weakening of the dollar.
Additionally many people believe that gold is a good hedge against inflation. But as can be seen from the chart, inflation has been rather tame, especially of late.
GOLD vs. US DOLLAR AND INFLATION
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​Finally, I have been developing a gold market indicator that would help with the long-term trend identification. Oftentimes one of the best way to determine if a security is in a bull or a bear market is to simply look at the 50-day and the 200-day moving averages. If the 50-day is above the 200-day, the security is bullish. If opposite – bearish. This technique gives OK results, but quite often throws whipsaws (false signals). For example, going back to 1985, there were around 32 directional changes on the gold chart if one was to use the 50x200 technique described above.
         The Gold Breadth Index (GBI) attempts to decrease the number of false trend changes. GBI does this by looking at a basket of gold mining stocks and using the signals generated by the gold miners to augment those signals generated by gold itself. Take a look at the chart below. GBI was able to eliminate the vast majority of the false trend signals. In fact, as it stands right now, GBI had a reliability of 75% from 1985 till today. (Reliable data is only available from around 1985).
         Point of this exercise: so far, we have not seen GBI and by extension gold turn bullish. It’s getting close, but not yet. 

Gold Miners ETF (GDX) mirrored the movements of gold (more or less), but in its usual volatile manner. GDX is up over 50% from tis low in January! Should gold break out and GBI turn bullish, I will be happy to look for buying opportunities in GDX. For now GDX is looking like an overbought security within a bigger downtrend.
 CHART OF GDX
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Oil started the week on a strong note, but still failed to break above the 50-day moving average. Basically its in no-man’s-land: too late to be picking bottoms, but not overbought enough to short yet. Maybe if the demand for oil picks up and the supply decreases…etc ... we will get a true rally.
CHART OF $WTIC
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NATGAS broke down conclusively below the early February lows and is likely headed for a retest of the multi-year lows set in the December of last year. Would those lows hold?
CHART OF NATGAS
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That’s it for this week’s market recap,
Best Regards and have another great trading week!
 
Alexander Berger (www.MasterChartsTrading.com)