UNTIL PROVEN OTHERWISE, THIS IS STILL A BEAR MARKET BOUNCE -- RISING BOND YIELDS AND STOCKS HAVE PULLED SOME MONEY OUT OF GOLD

STILL A BEAR MARKET BOUNCE... I've been surprised at the number of questions asking whether the recent stock rebound is the start of a new bull market or just a bear market rebound. In my view, this is still a bear market rebound. The only question in my mind has been whether the intermediate counter-trend move would take the shape of a flat trading range (which could retrace 38% of the prior downtrend) or a stronger bounce that could retrace 50%. So far, it's been the former. Chart 1 shows the S&P 500 trading sideways since mid-January between 1400 on the upside and 1275 on the downside. The horizontal bars on Chart 1 also show that the S&P has retraced 38%, which is usually the minimum requirement for a market rebound. The down trendline drawn over the October/December highs has gone unchallenged so far. Moving average lines also suggest a bear market bounce.

Chart 1

WEEKLY EMAS BOUNCE IN DOWNTREND... One reader asked about the recent upturn in the 13- and 34-day EMAs. Actually, I addressed that question on April 10 but will deal with it again. Yes, it's true that the daily EMAs have turned up. More importantly, the "weekly" EMA lines are still in a major downtrend. Chart 2 is a weekly Chart of the S&P 500 going back ten years. The black line is the "difference" between the 13 and 34 week exponential moving averages (EMAs) for the S&P. Here's the simple rule of thumb. A crossing over zero signals a bull market. That last occurred in the spring of 2003 (green arrow). A crossing below zero signals a bear market. That happened in the second half of 2000 and the end of 2007. The black line is still well below the zero line. The fact that it's bouncing (black circle) reflects the recent rebound. The weekly EMA spread has to cross back over zero to signal a new uptrend.

Chart 2

RISING BOND YIELDS CAUSE PROFIT-TAKING IN GOLD ... One reader asked about the relationship between gold and interest rates. As a rule of thumb, rising rates aren't good for gold. That may explain why gold hasn't bounced much over the last week even though the dollar is dropping. Chart 3 overlays the 10-Year T-Note Yield (green bars) on the price of gold since last November. Falling bond yields have been a big plus for gold since last summer. The uptick in yields, however, since mid-March has coincided with profit-taking in gold. The bounce in bond yields has also coincided with a rebound in stocks. Chart 4 overlays bond yields (green bars) to the S&P 500 (red line). Notice the close correlation between the two lines. In other words, the stock rally pulled some short-term money out of bonds and gold. So far, that hasn't much impact on the U.S. Dollar. Chart 5 shows the gold pullback starting in mid-March as the S&P 500 rebounded. If and when the stock rally peters out, we could see some of that money move right back into bonds and gold.

Chart 3

Chart 4

Chart 5