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As Stocks Struggle for Footing, Gold Pushes Higher

Investors looking for clues about the markets can't help but notice that gold is making another record high, and that stocks are continuing to struggle.

Gold Bars
AP
Gold Bars

“I don’t think gold is a negative indicator for stocks,” says Tim Smalls, CNBC contributor and head of U.S. trading at Execution Noble.

“I believe another record close for gold highlights the risk-aversion trade we have been highlighting. That continued 'flight to quality' trade continues in gold, U.S. dollar and Treasurys.”

But that does not mean he is bullish on stocks. Smalls said we are in a trading range with a “negative slant,” which means traders are still looking to sell rallies and that bias helps to keep pressure on the markets.

Marty Cunningham, head of the New York trading desk at Esposito Securities, is watching for a “melt-up” in the price of gold, followed by a correction.

“Anytime we witness a breakthrough to a new high (on gold), we find ourselves in uncharted territory and likely to move higher," said Cunningham. "The level of bearish sentiment within the equity and a number of currency markets continues to fuel the transfer of cash to the gold market.”

“If you don’t like the market here just wait a minute,” said Art Hogan, Jefferies' global equity product director. “As a measure of indecisiveness yesterday, the DJIA crossed back and forth across the neutral line 54 times. Today we are up to 27.”

Smalls is also watching the charts and notes that along with the major market indices, DJ Transports closed below its 200-day moving average for the second straight session. “Show me a positive story—you can’t,” he said.

What’s keeping Hogan awake at night? “A policy misstep like tightening too soon. That won't happen here in the U.S., but who knows what the ECBmight do. Or China.”

He is also concerned about market sentiment, more specifically, "down-market action turning into slow consumer spending.”

Market watchers will be listening for clues tomorrow when Fed Chairman Ben Bernanke testifies before the U.S. House Budget Committee.

But Hogan does see some bright spots. Equity “valuations are silly cheap. S+P 500 trading at 13x 2010 (earnings) and 11x 2011. Energy prices are going down and should help everyone. Germany has a huge benefit in a weaker euro: It's already showing up in their econ data."

“All silver linings.”