Mark Arbeter is the Chief Technical Strategist for Standard & Poors. He’s an excellent technical analyst and I really value his opinions. Arbeter earned his Chartered Market Technician designation and is an active member of the Market Technicians Association. We’re fortunate enough to have him share his thoughts with us on Stocktwits every day, but this week he sat down with Equities.com for a full interview. Where are the S&Ps are headed, Gold, the Dollar, and how will sentiment and rotation affect them?
I really enjoyed this one-on-one. Here is a brief excerpt:
EQ: The S&P 500 popped back above 1300 this week after breaking below 1280. Could this be the start of a bullish reversal pattern for the market?
Arbeter: Yes, because I think the S&P 500 and the other major indices are in the process of either tracing out double bottoms or potentially inverse head-and-shoulder bottoms. The key to completing these bullish formations will be for the markets or indices to rally above the late May-highs, and for the S&P 500 that is at around 1335. So in other words, to complete these bullish formations and turn the intermediate-term trends back to the bullish side, we would need a strong breakout over the 1335 level.
EQ: Last Friday saw a major sell-off in the market. Is this the capitulation that the market needs to form a bottom for at least the intermediate term?
Arbeter: I think we saw a mini capitulation with the strong down day last Friday. We were already oversold, and it appeared that, from a technical standpoint, we did have a capitulation. Normally, what you see with mini capitulations is a day where the breadth of the market is very weak and everything is thrown out of everyone’s portfolio. We saw that certainly on Friday. The 10 sectors of the S&P 500, especially the cyclical sectors, were extremely weak and moved very closely together. That correlation suggests that we had a mini capitulation. In addition, what you want to see during capitulation-type activity is extreme bearishness with a lot of the sentiment indicators that I follow.
We certainly saw that with option put-call ratios spiking to fairly high levels. We have also seen some recent weakness in other sentiment indicators. For instance, Wall Street strategists are now recommending their lowest allocation towards stocks going back to the bottom in 2009. I think that’s pretty telling considering the fact that the S&P 500 has only dropped about 10 percent during this recent decline. Back in 2008-2009, the market fell over 50 percent. So even though it wasn’t a total wipeout, I think we did already see the capitulation. Since the size of the top that we recently put in was only a couple months in duration, I was not expecting a major blow off to the downside. I think the sell-off on last Friday sets us up for some gains going forward.
EQ: You’ve been pretty bullish on gold recently. Why do you believe gold is positioned to rally?
Arbeter: Gold prices, as well as gold stocks, seem like they were bottoming just before the equity markets. We had a breakout from a reversal formation on June 1 for gold prices and gold stocks, which have actually put in an almost V-shaped bottom with the low coming in at the middle of May. So I do think gold stocks will outperform here going forward because they were the first to bottom, and I think gold prices and gold stocks are sniffing out more quantitative easing. It’s important to remember that this bottom in gold prices and gold stocks started to occur weeks before the weak nonfarm payroll report, which came out last Friday. So gold activity is suggesting there is more easing coming on a global basis.
The other reasons why I like gold is because I think the U.S. dollar is putting in a top. Sentiment for the U.S. dollar is extremely bullish, which many times marks a peak from an intermediate-term perspective.
In addition, the U.S. dollar has gotten extremely overbought on a technical basis, while at the same time gold prices are extremely oversold. Therefore I think gold leads financial assets here for the rest of the year.
Tags: $GLD $GC_F $GDX $GDXJ $SPY $SPX $UUP $USDX