Bullish Paths Dominate in Bayesian Analysis of SPY and GLD
By
Luke Miller
Our Bayesian Timing System (BTS) outlines three possible scenarios for the S&P 500, as represented by the SPDR S&P 500 (SPY). The bullish paths continue to dominate and a strong rally is still expected sooner than later.
The first scenario, with a Bayesian probability (BP) of 33%, sees the SPY either having found a bottom on Nov 20 or making a modest one more low in the near term. After that, price will begin a bullish leg higher to the mid-280s (and conditionally high 290s if the mid-280s are cleared) and then back down to 270ish before the correction is over.
The second scenario, with a BP of 35%, indicates the SPY found a bottom on 10/29 or there will be a modest one more low, after which a bullish leg into the 300s will have begun.
In the third and last scenario, with a BP of 32%, a bear market of sorts has begun dropping well below 250 (with no immediate recovery). This path is expected to last months and have bearish attributes of a 20%-30% correction from all time highs. Important dates remain centered on the week of Nov 19, and the spike low seen on Nov 20 could qualify. Further, the week of Dec 10 is showing importance from a timing perspective.
In metals, the action continues to fit within BTS expectations. The BTS still leans towards a break higher out of this consolidation and a press to 120-123 in the SPDR Gold Shares (GLD).
Here are two paths to consider:
(1) [BP=69%] GLD develops a false break low from the 113s and then higher into year end, and
(2) [BP=31%] GLD's high on Oct 26 generally holds, a false break higher confirms, and then a bearish push below 113 begins. On a micro level, the low in GLD on Oct 31 has been broken and this fits exactly within the multi-week expectations laid out in these daily thoughts.
What next? Considering the BP paths laid out above, a false breakdown reversal and a multi-week run higher are what the BPs are indicating. A vibration window of significance is appearing for Nov 28-Dec 5 – the BTS is interpreting it as being a spike of some sort.
And finally, on a micro level, there is a coin flip's chance that GLD will test 115 once more before resuming this run higher versus just continuing to press higher.
