Market Outlook: Indicators Point to Continued Bear Market in Gold

Gold has been falling for 18 months now and shows no signs of reaching a bottom. Stock market volatility fell to extraordinary lows by one measure. Look for more of the same in both markets – downside moves in gold and a trading range in stocks.
Volatility Signals a Small Trading Range Ahead
Stocks entered last week oversold and continued to sell off on Monday and Tuesday morning. After rallying 2.2% from Tuesday's low, SPDR S&P 500 (NYSE: SPY) ended the week with a gain of 0.14%, reversing a loss of the exact same amount the week before. SPY has now closed at exactly $152.11 in two of the last three weeks. With small moves of 0.14% for two straight weeks, February ended as one of the least volatile months in stock market history.
The CBOE Volatility Index (VIX) is widely used to measure volatility and VIX is significantly below its long-term average values. The chart below, compressed to show the entire trading history of SPY, uses a different volatility indicator, the monthly average true range (ATR). ATR measures the distance from high to low (accounting for gaps) in a time period. The chart shows the value of the ATR divided by the closing price, expressing the trading range as a percent of the current price. This calculation makes indicator values comparable over time. Last month, this indicator fell to 3%.

This the 10th time this indicator has fallen to 3% since SPY began trading 240 months ago. In the past, these signals have been followed by a directionless market. One month after previous signals, SPY was higher five times and lower four times. The average market move in the month after the signal has been 0.3%, less than half the average move of 0.61% seen in all months.  (more)
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