Follow the Tape

Bearishness towards equities is high right now. The recent decline has equity bulls, and by extension gold stock holders, terrified. The recent spike in emails about indecisiveness towards the gold stocks confirms it.

Once the reader poll is finished, I will discuss the outlook for equities further.

While price is important, it means nothing without a critical review of the tape. The tape has once again caught my attention. Notice how the test of the NYC swing lows on 2/5 and 2/8 came on contracting volume; The 2/08 test came with a 35% reduction in NYSE volume.

This big contraction suggests that the tape is weakening to the downside. The longer the swing low is tested with a weakening tape, the more likely price is to reverse and test resistance with force.

Of course, none of this suggests that the correction is over. Price activity is a process that is driven by the tape. As a result, the tape is the best source of clues as to the duration and magnitude of any decline or advance.

When the tape improves, equities will reverse. When equities reverse, the weak hands will stop selling the gold shares.

NY Composite Avg ETF (NYC) with NYSE Volume: