Note the resistance line at 1025 that needs to be broke in order for a rally to continue. I watched the futures and the cash trades during the day and was amazed at how much control the sellers had at this level. Strong selling thrusts every time the index rose to 1025. Look now at the RSI and stochs - way over bought. Also, we see another negative divergence in the Advance-Decline issues during the final hours of the day. Finally, another gap between 1016 and 1018. Very funny indeed. We know what happened with this gap last time - like a black hole it will suck the price action back in due time.
The US equities markets are looking a bit sickly right now - and perhaps too tired to even attempt a run at 1039. I think we should start to roll. But it is important to contemplate matters carefully. First, why is the dollar falling? Second, why is Gold rising? Finally, what does this mean for the US equity markets?
I have my opinions. First, I would like to note that Gold started its run before the big drop in the dollar today. So it is hard for me to accept an argument that Gold is up because the dollar is down. On the contrary, I think the dollar is down because Gold is up after breaking a major resistance level. Next, Gold has been rising independently of US equities. This suggests that participants feel more comfortable with the near term performance of Gold over the equities or the dollar. I do not think this has anything to do with inflation just yet. I think this is 100% fear based flight to safety. Fear of something that we just don't see yet. However, I am becoming more confident that it will involve a fairly significant market correction.
Love to hear some thoughts on that subject.
All the best!
13 comments:
http://instigator928.blogspot.com/2009/09/gld-tbt-vix-correlations.html
Hi David, today was the first time I saw "POWER" trading to the down side fight "power" trading to the upside.
1025 looked like it was made of iron.
We saw Gold take a ride , Oil on a rocket ship, 5%, pushing up the likes of cvx and xom , and thereby moving the DJi and Spy. But, not much flight into Treasury Bonds.
In Financial Stocks we saw some of the zombie trash take a hit , Aig -4.60 C .17. Banks ending the day on a weak up of .60% , never regaining the gap up a the open.
Ag , all down , corn , wheat ,beans , if we are talking only Dollar, they would not be down .
I can not put it all together , I dont know whats going on , and Im sure, I dont know anyone, that knows whats going on :)
But , Something is going on.
I maintain my short of Spy , DJI and holding Faz.
Hey David,
Thanks for the charts and the explanations of what you see. Sometimes I look at a chart and it's like looking at one of those ink blot pictures trying to figure out what I see.
Anyhow, When the market crashed (the last time) didnt we see gold do the same thing. I heard somewhere that the rise in gold preceeded the crash and in hindsight it is very clear. Do you see the same rise in gold signaling a crash like before?
Good Luck!! Mark
Hey Payline,
I think there are a lot of us scratching our heads right now. Did you see the news on Barrick Gold? They are raising money to buy back all of their covered calls (about $3 billion worth). Seems they are pretty confident that gold is going to continue the rise over the next 12 months. I'm sure this factors into the picture.
Hey California,
Yes, I see the de-coupled rise in Gold as a signal for a US equities market correction. I can't say crash - but I can say correction.
This is the primary reason why I keep Gold and Silver in my portfolio - as a signal generator. I'm happy to book the profits as well but it is much more valuable to me as a trigger. Participants move to gold when true and deep fear begins to grip.
I started to talk about this almost 2 weeks ago on the HMS blog.
We'll soon find out what it all means.
Best of luck to you!
Hi again David ,
I agree with you that we may be looking at a correction but , say 960 or so after we bust 978.
But fear over a simple correction or pullback ? doesn't fit,
So I am with you , if its fear , and it may not be fear, ( tbt and tlt may help let us know ) This is smart money we are talking about here , What are they in fear of ?
Remain watching and wondering , tell we see it , if its there ,
I expect we will know it when we see it .
Happy Trading to Everyone .
Thanks again David for your great post.
I agree, which is not necessarily a great sign for you. I didn't really think we'd hit 1025 until yesterday. I did not set the world on fire with my trades today, but did take some positions at good prices and covered a decent amount for profits in one fairly big trade at around 1021. I would be amazed if we hit 1039, simply amazed.
Bloomberg is reporting Moodys and the other rating folks will soon downgrade the US and UKs credit ratings. Good for gold perhaps ? , as we go where we have never been , not in our lifetimes anyhow.
Congress is back, that cant be good.
The market today put an old 80s song in my head from Reo Speedwagon ,
" Riding the storm out , waiting for the fall out "
May all your dreams and Sets Ups
be true.
Very nice blog.
Market a bit stronger today.
KPH,
Unfortunately, I was not at the desk today so I could not monitor strength. I'll have to try and piece it together tonight based on intra-day volume/price action in the futures. I'll do my best to interpret and update the blog.
Side note: A funny thought came to me as I was arriving in NYC this morning. Is creating a weak dollar short term a workable strategy for keeping equity markets proped-up during the September and October months? I mean, could the cohorts of the G20 manage to execute that strategy and reverse it when the economy catches up? Seems to me that everyone is concerned that without a booming equities market, we are all up the creek without a paddle. Perhaps sacrificing the dollar in the short team is the only play left?
It has been a long day - and I I don't want to become one of those conspiracy theory nuts! But then again, it is possible.
I do not think that the powers that be have a real strategy.
Oh they have a strategy - and it is arrogant. This is a deadly market for the weak hands. It is also a great market for the leveraged few - I have been doing very well with the ES futures.
Looking at the charts now...
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