The Recent Intraday Divergence in Gold GLD and SPY Mar 15

Mar 15, 2010: 12:55 PM CST

For those who follow gold and the S&P 500 closely, you’ve certainly noticed that prices are diverging after GLD’s peak on March 3rd while the SPY (S&P 500 ETF) continued on to new recovery highs and *may* have peaked Friday.

Let’s take a look at the 30min combined chart to see the positive relationship… and where it recently hit the rocks.


(Click Image for Full-Size Chart)

The Gold color is the GLD ETF, scaled on the left axis while the black color is the SPY (S&P 500) ETF, scaled on the right side.

With few recent exceptions, these ETFs move in lock-step, with gold sometimes having a very slight lead in turns in the SPY (and sometimes vice-versa).

Everything has been perfectly fine in this relationship until Gold in early March (3rd) last week began trailing lower and diverging from the continually rising (non-stop!) SPY (and other US Equity Market Indexes).

It’s possible that the SPY formed an ‘exhaustion’ gap early Friday morning and will now begin heading lower, following the prior decline in gold prices from last week until present.

This is why inter-market relationships can be important – when one market cleanly deviates (diverges) with expectations, it can send a signal that “all is not well” and could precede key turns as the relationships head back into balance.

Keep a close watch on these two ETFs and how this situation resolves itself this week.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

6 Comments

6 Responses to “The Recent Intraday Divergence in Gold GLD and SPY Mar 15”

  1. Doug Jones Says:

    Cory, I am afraid the divergences just don't matter, They are buying any and all dips. There is no stopping this train, just one head fake after another which leads to intense shortcovering in the afternoon and days later, have seen nothing on tick except between 11-12 that forecasted the reversal,I just don't understand how they are able to rotate enough each day to still keep the major indicies up. The only bearish thing is that they can not push all of the sectors the same day.

  2. Corey Rosenbloom, CMT Says:

    Doug,

    I'm inclined to agree, which is why watching the 1,150 area is so important as it will (almost certainly) trigger a flood of short-covering orders if solidly broken.

    It's almost as if any bearish omen or signal is taken as a literal joke.

    Will continue watching how long they can continue driving the market higher and popping more stops.

  3. saturn6 Says:

    Cory, I have also noted this, as can be seen from my charts listed below. It looks as if stocks are going to start out-performing gold which is contrary to what most believe, (Contrarian!) thats not to say that gold will fall and stocks will rise, but could be that gold falls but stocks fall less, or gold rises but not as much as stocks, and so on.

    Either way it does make me re-think my strategy for the up and coming weeks/months and I am still mulling over its significance.

    If you are not a stockcharts member to see the annotaions copy link into browser and refresh.

    http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=D

    http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=W

  4. the99th Says:

    I think I might buy a GLD 114 Call and an SPY 111 Put to play the mean-reversion.

  5. Diggy | Forexhabits.com Says:

    Hey Corey!

    I've also noticed this deviation from the usual correlation between gold and the SPY. I actually have the feeling that the indices are too overbought and that the SP500 shoul head back to somewhere around the 1120 level. For gold, as long as it remains under 1132 I believe it can head as low as 1060.

    Cheers
    Diggy

  6. Diggy | Forexhabits.com Says:

    Hey Corey!

    I've also noticed this deviation from the usual correlation between gold and the SPY. I actually have the feeling that the indices are too overbought and that the SP500 shoul head back to somewhere around the 1120 level. For gold, as long as it remains under 1132 I believe it can head as low as 1060.

    Cheers
    Diggy