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Sell Stocks, Buy Gold

08/26/2008 12:00 am EST


Mark Leibovit

Chief Market Strategist,

Mark Leibovit, editor of, says it’s a good time to be out of the market and into gold.

Aside from Labor Day, September has the dubious distinction of being the worst month of the year for the stock market.

Although I feel an important trading bottom and buying opportunity lies ahead, between now and the end of September is not a time to be long the market until it is clear a low has been formed. My current expectations call for a test and/or break of the July 15th lows, i.e., 1200.45 in the Standard & Poor’s 500, with downside potential even as great as 1080 which would roughly equate to the Dow Jones Industrial Average trading at 9975.00.

Any sustainable advance in the US stock market is unlikely until we begin to see stabilization and possibly signs of an up trend in the US housing market. Wall Street may not like hearing this prognostication, but it may be the greatest single axiom needed to forecast any future bull market.

At the same time, we're getting a tad oversold here with some indexes down four days in a row. [This] week may host end-of-the-month “window dressing” (for the life of me, I have no idea what money manager would even want to buy), and next weekend is Labor Day weekend, both of which could host a rally try in the marketplace. The historical tendency is for a rally the day before the Labor Day holiday and the two days after.

I remain on my Timer Digest Buy signal for gold. However, I am less confident this rally will get anywhere near recent highs. Generally, when such a violent correction ensues it takes several months to build “the cause,” or base, for a renewed advance. We've seen this occur before most notably between May 2006 and September 2007—the time it took between new market highs.

Meanwhile, a technical bounce at this time in Gold back to $880 or so is not unreasonable. Above those levels, we're headed to new highs. If we break recent lows—i.e., $780 in gold—look for $730 and possibly $690 in gold in the weeks that follow.

We won't know for several weeks how sustainable any recovery in gold truly is. It is my feeling the US Dollar Index needs to retrace from current levels on its way to new lows.

I remain on my Timer Digest Buy signal for gold. Keep in mind that gold displays a hybrid personality, sometimes acting as an anti-fiat currency, or tracking the general direction of commodity markets, or tracking trends in the local money supply, for clues about the direction of inflation. It changes day to day. All you need to know is to own it!

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