There were two bottom extensions yesterday, in a commodity index that we follow and in gold:
The commodity index signal would not be very significant on its own – this is an ‘equal weight’ index that does not reflect the importance of the various components to the world economy. There are other commodity indices that do and none have yet made signals. The gold extension adds meaning however, coming as it does so soon after a copper bottom (sorry) extension. There is much pain to be experienced in ‘buying falling knives’ but these signals collectively indicate that the drop in commodities is overdone and that bounces should be expected. This is also a chance simply to follow the signal and buy some gold. As ever, wait until you are satisfied that the price has stopped dropping before taking action, but the drop in gold prices has made it look oddly cheap, granted all the uncertainty that abounds.
We are wary of interpreting a signal to buy gold as a wider warning of imminent trouble, but we will keep it in mind while surveying all the other asset classes over the next few weeks. Perhaps you should too.
All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com
