The stock indexes rallies nicely today, with the Nasdaq leading the way. Volume was a little light, in fact on most indexes it was lighter than last Friday. Short term momentum and trends turned up on most indexes late last week, although longer term trends are not as clear. It seems there was too much anticipation of a re-test of the lows of two and a half weeks ago. Nearly every blog and analyst I read were calling for such a re-test. That was a big clue that it wouldn’t happen. The indexes started a re-test and did correct back down about a third of the way, but with perceptions of the Fed easing, the re-test was short lived and the pivots that formed under the rounding over regression channels have since given way. The market usually does its best to do the opposite when most traders are in agreement. The structure of the market is now up and that low reversal bar obviously now looks more and more like a bottom. The whole pattern even looks like an inverted head and shoulders pattern, although that pattern usually occurs at the end of larger down-moves, not as a continuation pattern as it is here. I have focused more on the Nasdaq/QQQQ lately as it seems to have the better relative strength, as you can see in the chart above, where the Q’s are on the top graph, and the S&P below. You can see the blue line drawn on each at the last pivot, where the S&P broke above today, while the Q’s broke out three bars ago, along with the upturn in momentum.
September can be quite volatile, and the perception is that the seasonal pattern in September is down. I think those patterns keep getting moved up a little each year. One shouldn’t rule out a re-test of those recent lows, but if structure and moment are higher one should trade in that direction until that condition changes. The S&Ps are more vulnerable to a move down, as the regression channel has rounded over and is declining, so if momentum turns back down I’ll trade the S&Ps from the short side, and stick with the QQQQ for long trades. The trigger for me to look at the short side of the S&Ps would be if prices retreat back under that pivot where the blue line is drawn, and if there is a divergence in the double stochastic. If that occurs in the next few days I’ll post it here.
Gold was up sharply, and this time with some buying coming in during the US day session. There is nearly universal agreement that the Fed will lower the funds rate and that the dollar will continue down, thus pusing gold up, as the dollar seems to be the only driver for gold right now. If so the Dollar index futures aren’t accepting that yet, as the downswings seem shorter and the down acceleration as defined by the regression curve is flattening, and could turn up. This would be consistent with confusing the largest number of traders when there is a consensus. But for the moment gold momentum is up, but it is still within a longer term sideways channel.