MOOSPEAK: JUN14.2025
Not Too Shabby For A Freebie
DecisionMoose is published weekly. The models are run daily. Folks who are banking on the newsletter to spoon-feed them a daily signal are left in the lurch. So I’ve spent the last couple of weeks outlining a charting methodology to help readers track daily signals that may occur in the free Index Model. Turns out, the Index Model gave a daily switch signal via a buy-stop in GLD last Thursday and those of you paying attention could have acted on it.
I confess: That switch was not so much serendipity (a happy accident) as it was expected. A look at the chart for GLD indicated that the price channel was narrowing and that a stop signal (in either direction) was only a percent or two away. The switch signal came this week-- helped along by events-- just in time to use it as a teaching moment.
Recent switch history: The Index Model computes a daily signal but only publishes the latest Friday signal weekly. On January 8th the Index model switched from US large caps (SPY) into Gold (GLD) based on relative strength. That signal held until May 14, when GLD triggered a 20-day stop-loss, prompting the Index model to switch into the asset with the second highest relative strength, developed international equities (EFA). This week (6/12), GLD, still the top ETF in relative strength, triggered a buy-stop putting the model back into gold.
Not bad for a freebie. The January switch into gold put the free Index Model up over 19% by the time the exit into EFA occurred in May. The switch into EFA then added another 4 or 5 percent leaving the Index Model up over to 25% in the first six months of 2025. It is still too early to judge the latest return to gold, but overall, Index Model performance this year is not bad for a freebie.
This week’s switch back into gold was typical in that it wasn’t a lock by any stretch of the imagination. For simplicity’s sake the model reacts to stop signals automatically unless there are over-riding reasons to be wary.
Relative strength is the model’s primary consideration. In this case, a buy-stop put us back into the asset with the highest relative strength and by a significant amount. That makes it more convincing than the earlier switch out of gold and into international equities, a relatively weaker asset at the time. Moreover, on the day of the switch GLD was 1.24% higher while EFA was 0.77% higher— a 61% premium for GLD. Daily premiums over 50% are significant.
RSI14 for GLD on the day of the proposed switch (June 12) was around 58, neither overbought nor oversold and a suitable candidate for purchase. RSI14 for EFA however, was 70 and overbought, making EFA a potential sell candidate.
Price Momentum Oscillator (PMO)-- There were reasons to doubt the switch signal, however, the main one being my propensity to follow the old adage that “if it ain’t broke don’t fix it.” On the switch date, EFA was working on a ten-week string of positive results. GLD on the other hand was actually lower than it was six-weeks before. As a result, PMO (Price Momentum) was lower in GLD than EFA.
Moreover, the June 12 price of GLD gapped up to the 20-day high and stopped right there, as if the computer models had sent it there automatically. It didn’t break above the buy-stop level on the initial move, and it was still below the previous all-time high which is traditionally perceived to be a breakout point. A lot of times a move (up or down) right to the price channel with no follow-through signals a reversal-- buying on a dip or selling on a dead cat bounce.
When considering action at a particular point in time, the slope of the PMO line relative to its10-day is more indicative than the value assigned to it. On 6/11, the day before the buy-stop in GLD price-momentum in EFA dipped below its 10-day indicating a negative shift in short-term momentum, and on 6/12 it worsened. GLD’s price momentum was also below its 10-day on 6/11, but on 6/12 it improved. Perhaps it was splitting hairs, but that divergence also mitigated in favor of GLD.
News of Israel’s assault on Iran broke well after the US markets closed on Thursday the 12th, validating the day’s shift to gold. Is it possible someone got wind of the attack a few hours before? After all, it wasn’t entirely unexpected. A gap higher in GLD and a switch signal certainly suggest the possibility.
One of the advantages of gold is its inflation-friendliness and war in the Middle-East certainly jacks oil prices. Its biggest disadvantage is that it is a sterile asset. It pays no interest or dividends. If you believe that US budget, tax and tariff initiatives will work themselves out in the second half, US equities could soar. If not, foreign equities will. Gold only works in crisis mode, and nobody wants to endure that backdrop for very long.