The S&P 500 peaked on September 18. Since then it has been in a downward trend, overallshedding 2.2% in value.
Of concern, the downward trend presents the question of when will the S&P 500 regain strength.
In looking at the technical indicators, the signal is not positive.
The S&P 500 is floating below its 20-day and 50-day moving average, and until Friday, below its 100-day moving average. Furthering the downward trend, the relative strength index is not providing a buy signal, at least not at the level it has in many of the past cycles.
Given the weakness in the S&P 500, it comes as no surprise that gold looks to be a profitable alternative.
The following looks at the performance of the S&P 500 and the performance of the price of gold (London PM).
The current widening - S&P 500 has been strong, while gold has been through some weakness - look a good deal like the widening in 2007.
If history is any guide, the widening difference is due for a reversion, meaning the S&P 500is due for deterioration and gold is due for price appreciation.
How much?
As a guide, averaging the difference between the two would put gold at a target price of about 1,500 (25% upside risk), with the S&P 500 dropping to around 1,600 (19% downside risk).
