Uncertainty

The markets dislike uncertainty, and since last Friday, they have had much to dislike. The endless ‘email‘ question, is reminiscent of the ‘birther’ question that Trump used to annoy Obama with for years. The difference, of course, is that the ‘birther’ question did not produce uncertainty in the market, while the ‘email’ question is doing just that. The election results have gone from almost a sure thing, to almost too close to call. This closeness means that regardless of who wins, the uncertainty will continue. The market would prefer an incontestable win by either candidate, but now that seems unlikely, so the market drifts lower.

Equities

The market continues to behave within the parameters of the patterns that we follow. The chart below shows the similar pattern to last year when the bull and bear sentiment indicators spiked ahead of the top in the SPX and subsequent sharp drop. With both the bull and bear sentiments having room to move, there is still substantial downside possible.

The sentiment and Rydex fund assets, also continue to show a post-topping pattern (chart below). We remind our readers that the Rydex funds provide us with information about where money is going, and that historically, it has been a contrarian indicator; maximally bullish at market tops, and maximally bearish at market bottoms (see chart below).

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The negative correlation of the SPX with interest rates continues to hold. The 10-year and 30-year rates have held steady this week with their upward bias still intact. The 2-year rate has dropped, but even though lower rates would normally help support the equities market, this time lower rates were ignored by the market (chart below).

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Gold

As much as the equities market dislikes uncertainty, the gold market loves it. The election uncertainty has driven the over-sold bounce further than we expected, but it has not broken through the upper resistance zone (chart below).

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The chart below shows the long-term trading of gold and the dollar. The pricing in gold continues to fit a similar pattern as in the year 2000.

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Despite some back-tracking in the USD/JPY pricing, the upward bias is still intact (chart below).

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Over the last two weeks, the commitments of gold futures traders report shows that the speculators have added to their long positions, and the commercial traders have added to their short positions. As we have pointed out before, the commercial traders are usually better informed about the gold market than the fund managers are; at least in the long-run.