Our fundamental gold model has been bearish for several weeks, and the technicals have finally broken through support levels at the 1216 level.  See figure 1 a weekly chart of a continuous gold futures contract.  It had been my expectation that gold might bottom here as this was the area in 2010 that launched gold on a 15 month run into its 2011 highs.  So the technicals and fundamentals are negative, so this moves us from neutral to bearish on gold.  Of course, we remain vigilant to reversals.  1216 is now resistance, and a close above this level would constitute a reversal.   Gold is at risk for trading down to $1100, which is the next support level.

Owing to the fact that the technicals were positive and the fundamentals negative, we had a one-half allocation to gold in the 4 Asset Model Portfolio.  As we are now bearish on gold, we will liquidate our position in GLD at Monday’s open.

Figure 1. Gold/ weekly

In equity land, we will become sellers into strength after the “dumb money” indicator crosses below the upper trading band. See figure 2. This would be at least 2 weeks away at the very least and probably longer.  For now, the bulls are in control.

Figure 2. “Dumb Money”/ weekly

We remain constructive on crude oil both fundamentally (i.e., rising yields) and technically, and we have been long for 3 weeks now.

Our fundamental bond model remains on a sell signal last week.  It is our expectation that bond yields should rise. See this video of the week.  We remain patient for now.

Our portfolio rules state: 60% of the funds are allocated towards equities when there is an equity buy signal. When equities are on a buy signal, the other 40% of the portfolio is divided up equally amongst the other assets. If equities are not on a buy signal, then the other assets get no more than a 20% allocation each. We do not use leverage.

The 4 Asset Model Portfolio spreadsheet is updated through Friday.

Figure 3. 4 Asset Model Portfolio/ spreadsheet

Closed positions from the 4 Asset Model Portfolio are shown in the next spreadsheet.

Figure 4. 4 Asset Model Portfolio/ closed positions

I have put together a table of our 4 assets showing which mode I think we are currently in. As our models tend to be constructed with both fundamental and technical data, a bull signal is registered when both fundamentals and technicals are positive. A bear signal is registered when both fundamentals and technicals are negative. A neutral signal means that only 1 element of our model is positive. Neutral market signals tend to be ruled by overbought and oversold conditions; the market is range bound. We can be buyers in bear markets as conditions can be ripe for a reversal, so being bullish in a bear is acceptable.

Figure 5. 4 Assets/ Signals