Stocks down, Gold up

q0917.pngStock indexes closed lower ahead of the much expected Fed rate cut. Gold rallied. The gold pit session lost about half the gain, but in after hours electronic trading it closed near the high of the day. The dollar index is holding just a bit under the psychological 80 area, being flat today, and crude was sharply higher. Of the stock indexes, the Nasdaq/QQQQ and small caps were the hardest hit, with the Dow down only about a third as much. GM helped the Dow from falling further. It has been a frustrating market recently for swing traders. Day traders are better able to handle the abrupt reversals. Perhaps after the Fed announcement on Tuesday there will be a sustained trend in one direction or the other. You can see on the QQQQ chart how prices are right up against the mid-point of the regression channel, with periods of congestion around the three day pivots (yellow dots). Today the Qs opened under the three day pivot and couldn’t trade above it, and the short term momentum indicator in the bottom sub-graph has started to turn back down. It will most likely cross back below its signal line tomorrow, unless the Fed move sparks a substantial rally. I don’t want to stand in front of the Fed announcement. Traders use these announcement to clean out stops in both direction, and there will probably be many interpretations and re-interpretations of what the Fed is implying. This game plays out on every Fed day, but this time there is more anticipation due to the credit problems. Too much of a cut could cause worries. Too little of a cut could cause worries. I vote for 1/4 point cut in the Fed funds rate and a cut in the discount rate.
gold0917.pngGold rallied back up to the upper end of that upthrust tail left on Friday’s chart. The chart to the left is of the Chicago electronic session that is trading up $8.50 as this is written. The New York pit session closed up $5.90, after having been up almost $5.00 higher mid-session. The trend is obviously strongly up, but today wasn’t enough to turn the short term momentum back to the upside. I don’t want to chase this market up as it is too vulnerable to a shakeout. It’s almost universally accepted that the dollar will fall once the interest rates are cut, which will push gold up. That’s old news. The dollar is already down in the basement and gold is way over-valued based on any logical measure of valuation. There is much speculative froth. If the dollar fails to fall further once the rates are cut, the dollar could rebound and shake out the gold bulls. Or gold could keep on going straight up to the moon just like the radio pitchmen keep promising.

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