Gold and stocks lower

Stocks were lower again today. The Dow and S&P were up for most of the session today, while the Nasdaq struggled, but near the end of the session the rally attempts faded and stocks closes lower once again. The move lower was led by bubbles continuing to pop in the high flying momentum names such as goog, aapl, rimm, bidu, ptr, fxi, etc. The current leg down is extending a bit further than the previous leg. I thought there might be a chance of symmetry between the current and previous leg down, with a bounce back up to the declining regression channel. A dead cat bounce rally could occur still, and probably should be expected, but the overall picture is looking more bearish every day. One would expect rally attempts going into a normally bullish time of the year. The way the market is unwinding here, it looks like rallies would be good shorts as long as the price structure remains negative.
There are many bubbles popping, but they can be summarized by the China 25 ETF or FXI. You can see the double top, with the divergence between price and the double stochastic indicator below, and the pivot taken out at the red line, and the adaptive moving average trend now turning down. Short term the oscillator is oversold, but it did go to a lower low than the previous three low points. That leads me to believe that much lower prices will be seen. A rally back up to the red horizontal line would be a logical place for a short if not short already. That would relieve the short term oversold condition. The bubble stocks I mentioned above have similar looking charts. I find it often best to pass on the first break in a parabolic market, and wait for the first retest back up before entering shorts. It is compelling to look at momentum divergences that seem to pick out the exact top. But in real time it is difficult to pick which divergence actually picks out the top, as there are often many failed divergences prior to the one that works. The eye can play tricks when looking at past charts. I wrote an article a while back on possible ways to exit the big trend. The second chart on the page shows a good example of waiting for a re-test back up as a good entry point for a short.
Another very big bubble that began to let out some air today is the gold market. The chart to the left shows the $28 down move on the black candle on the second bar back on the right side. The bar at the very right side is the after-hours session as I write this, which shows the market down another $9, although up a bit from the open of the after-hours session. The trend in the gold market is still up, and the oscillator is getting very oversold. It wouldn’t be surprising to see another rally attempt, which might be a good place to get short. I’m a long term bull on gold and long time gold bug. My bullish opinion usually gets in the way of objective analysis. It is very difficult for me to go short gold. I’m trying to view the gold market as I would any other market and trade it as the trends develop – both up and down. Markets do go in both directions, contrary to what many on Wall Street want one to think when they are at extremes and the best course of action is to go the opposite way of the herd. The trigger to the sell-off was most likely the rally in the dollar, which is still in a powerful downtrend. So far the rally looks like a dead cat bounce, and a very dead cat at that. V shape bottoms can happen, but they are rare. It would be more reassuring to get some kind of bottoming action, such as a double or triple bottom with momentum divergences and evidence of trend change, before probing the long side of the dollar. Same thing, but inverse, on gold. The oil market also started to pop its bubble a bit. Tomorrow is the much talked about crude option expiration that is/was supposed to hold oil over $100. We’ll see.

I changed the blog to now show the previous five posts instead of just the current post. This way I can add to a post without subjected the previous post to the archives. Sometimes I have little to add and would like to just add a paragraph or two while still maintaining the charts from the previous few posts. Blogging is new to me and I’m still experimenting to get it right. I also want to change the trends page to just show one summary trend with a comment, and include the dollar and China markets. There aren’t many hits on that page yet. It takes too much time to update that if few people are using it. I’ll keep experimenting.