Stock rebound from lows, Gold higher again

q1025.pngStocks once again recovered from early session losses to close mostly higher. There is still anticipation of the expected rate cut next week. It’s news everyone knows, but still seems to be feeding this run. Also, MSFT reported after the close and the stock is up sharply in after-hours trading. The chart to the left shows the QQQQ/Nasdaq 100 ETF as of the close today, without reflecting the sharp up-move in MSFT. The broadening formation I referred to yesterday got some questions, so I drew the lines in on the chart today. After an extended move a market will often create a broadening formation as the swings get larger. This forms the shape of a wedge or megaphone. If the up-swings fail and the bottom is taken out, it can present an ominous suggestion of a reversal. We’ll see tomorrow if the MSFT news driven after-hours rally holds into the day session and spills over to other issues to disable this potentially bearish set-up. I hesitate to say anything bearish, as these bubbles keep getting larger. One way to look at it is if a market ignores bad news and keeps marching higher, it is a very bullish sign. Another way to look at it is traders are piling into overcrowded, over-extended, one-sided trades, thinking that momentum only has one way to go, and that maybe this time really is different. After all, China has a growing economy. I think I heard the same rationale about Japan a few years back. That market was supposed to be different because it wasn’t in the culture of that country to sell. But sell they did. Now there is rampant speculation by inexperienced traders that will most likely implode at some point. Enjoy the party while it lasts, but don’t spend the profits until they are locked in. David Wessel had a good article on the second page of today’s Wall Street Journal, called Three-Ingredient Recipe for Recession.
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Gold was up nearly $6, and is up another couple of bucks in the after hours session, most likely fueled by another big surge in crude oil, most likely fueled by tensions with Iran, but ultimately really fueled by the never ending and much hyped growth in China. The above chart of the day session contract shows the persistent up-trend, this time using John Ehler’s Mesa Adaptive Moving Average to define the trend. It has been a choppy ride, as is normal for gold, but the trend has been impressive. There is no loss of momentum yet, or divergence, to suggest an end to this very one sided trade. It’s hard for me to be bearish on gold as I’ve been a gold bug for many years, but when I see consensus that says there is only one way for gold to go I get nervous. I’m especially nervous when that consensus is mostly made up of people who are jumping on board now who have never traded, or even thought about the barbaric relic. The small indecision candle would normally be worrisome, but of course this time is different, and China is probably buying.

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