Gold, Presidential Cycle, Suggest U.S. Stock Rally Nearing an End

The S&P 500 index has recently broken above its March and April highs, extending the rally that began at the end of 2011. During this time, the price of gold has declined, making lower highs, while the S&P has risen, making higher lows.

More recently, the two have broken to the upside together, a sign the relationship between equities and gold has shifted, and perhaps a warning that the stock market’s recent gains are nearing an end.

The S&P’s break above its recent highs comes amid hope that the European Central Bank and European policy makers will successfully solve their debt crisis, and as U.S. investors were handed a further round of quantitative easing by the Federal Reserve. Meanwhile, the U.S. election race is intensifying and the ‘presidential cycle,’ a technical analysis theory, suggests a likely new high for equity markets in the fourth year of a president’s term.

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