Charts present S&P 500 could toil in August, gold appears to rally

Traders could possibly discover constructive returns in gold whereas the S&P 500 enters a traditionally difficult month, CNBC’s Jim Cramer stated Monday.

“The charts, as interpreted by the legendary Larry Williams, counsel that August could possibly be a troublesome month for the S&P 500, however a terrific month for gold. Given the large image backdrop proper now, that would not shock me one bit,” the “Mad Cash” host stated.

“Keep in mind, in the course of the authentic debt ceiling debacle a decade in the past, the inventory market broke down and … gold did nice,” Cramer added, alluding to the actual fact a two-year suspension of the debt ceiling expired on the finish of July and Congress now must both elevate the federal government’s borrowing restrict or pause it as soon as once more.

Trying on the S&P 500, particularly, Cramer stated Williams sees diminishing breadth when tallying the variety of advancing shares versus declining shares. That is along with a tough seasonal interval for the broad fairness index, which is up 16.8% 12 months up to now, Cramer stated.

“Simply for the reason that starting of the summer season, [Williams] can level to 3 moments when the S&P rallied to increased highs however the Advance/Decline line didn’t make the next studying, which means the market went up on not-so-hot breadth,” Cramer defined.

“For Williams, that implies a number of huge cash managers should be promoting a lot of their positions. He says he is seen this sample earlier than and it is not wholesome. Usually when shares rally, the Advance/Decline line must be making new highs. However that is not taking place and it means this transfer might have ft of clay,” Cramer stated, whereas disclosing Williams has taken a “small” quick place within the E-mini S&P 500 futures.

The technician additionally sees bearish alerts in a momentum indicator generally known as on-balance quantity, which is calculated by including S&P 500 quantity on constructive days and subtracting it from detrimental days, Cramer stated.

“The S&P makes new highs, however the On Stability Quantity stays flat. That is one other detrimental. Keep in mind, for technicians, quantity is sort of a lie-detector. When it is weak, which means a transfer is misleading. Another reason Williams is apprehensive about the remainder of this seasonally difficult month,” Cramer stated.

Then again, Cramer stated Williams’ evaluation reveals a extra optimistic near-term outlook for gold. “Williams is lengthy gold for exactly the identical motive he is apprehensive in regards to the S&P: The seasonal sample,” Cramer stated.

Moreover, Cramer stated information from the Commodity Futures Buying and selling Fee reveals industrial hedgers have just lately been shopping for gold futures in a sturdy trend, which traditionally has led to “a pleasant rally.”

Gold’s worth compared to Treasury bonds is one other piece of data working in favor of the valuable steel, based mostly on Williams’ evaluation, Cramer stated.

“As you’ll be able to see from the chart, not solely does the valuable steel have a strong seasonal development on its facet … nevertheless it’s extraordinarily undervalued versus the bonds,” Cramer stated.