The US stock market successfully tests its low

I wrote in a TSI commentary published on Sunday that the S&P500 Index (SPX) appeared to have completed a successful test of its 24th August low early last week. This view meshed with the price action and the fact that by some measures, most notably the Investors Intelligence Bull/Bear Ratio, last week’s test occurred in parallel with extreme negativity.

More evidence of a successful test of the low emerged on Monday 5th October when the number of individual stocks making new 52-week lows collapsed while the number of individual stocks making new 52-week highs rose significantly on both the NYSE and the NASDAQ.

The SPX is now less than 1% from substantial resistance at 2000. I suspect that this resistance will cap the SPX’s rebound for now, but that it will be breached before year-end. Based on a number of long-term indicators, I also suspect that the July-September downturn was the first leg of a cyclical bear market and that several months of range-trading will be followed by a decline to well below the 24th August low.

The gold-mining indices are finally showing signs of strength

The gold-mining indices broke out to the upside last Friday. Furthermore, the breakout was solidified on Monday when the HUI/gold ratio closed decisively above its 40-day MA for the first time since April.

The breakout could still be a ‘head fake’, but it should be given the benefit of the doubt until proven otherwise.

Kinross Gold (KGC), the most under-valued of the major gold producers, broke above the top of a well-defined intermediate-term price channel on Monday. Based on this price action my guess is that it will rise to around US$2.40 within the next three weeks.

Ben Bernanke, Master of Tautology

Former Fed chief Ben Bernanke has apparently argued that poor productivity has held back growth in the US. This is like arguing that growth has been held back by a lack of growth, since the ONLY way that per-capita economic growth can happen is via an increase in productivity.