Stocks back up, gold back down

The dollar made a very slight recovery today. The graphic on the left from Barron’s this week maybe will prove to be timely. At least a few analysts are moving over to the empty side of the boat. The dollar bear side is still extremely crowded. The perception is still that the dollar slide has a long way to go and investment strategies seem to be based on that assumption. If the dollar should rebound, especially in the face of the perception of falling interest rates, that would certainly throw off many investment strategies dependent on the never ending trend of the dollar. Trends just don’t last indefinitely. A bell never rings at the turning point. The market will do whatever it can to turn when everyone is looking the other way and holding on to their Ringgits. (By the way, the Ringgit was down sharply today, and the Baltic Dry Index cracked below the 10,000 level.)
The chart to the right is the cash euro vs dollar, which is of course inverse to the dollar index. I squeezed the bars tight to show the the move up in the euro (down in the dollar) just since September. The leg up is just a small portion of the overall trend than has been in place for over five or six years. You can see the tail, or upthrust bar three bars back (the current tiny bar, which is hard to see, is the start of the Wednesday session). The is still a clear uptrend in place and the upthrust bar may still be taken out. One encouraging sign for the bull dollar/bear euro case is the divergence in the momentum indicator. There have been many divergences that send the market down a bit, but then prices recover and go to new highs. At one point the market will test a new high, fail, and then go into a downtrend.
Gold and oil were both down sharply today, far more than what would account for the small amount the dollar was up. I still believe the dollar is the main driving force of the gold market, and to some degree also the oil market, although the oil market has more fundamentals and speculative forces driving it in my opinion. Therefore if there is to be a correlation seen between oil and gold it probably has more to do with the inverse correlation between the dollar with gold and the dollar with oil, resulting in an indirect correlation between oil and gold. But that’s just my opinion.
The Nasdaq 100/QQQQ chart to the left shows many overlapping bars over the last couple of weeks. The overall trend is still down, but without any downside progress. Momentum has been generally trending upward, with a couple of see saw areas in the very short term momentum, as seen on the white line. This has been a nearly impossible market to trade off the daily charts. Even the shorter term intra-day charts have been a mess. If this market can’t go down, it will probably try for an upside move soon to test higher areas. If this market tries to test higher there is a good chance of failure, and that could set up the next leg down. If momentum should turn down first I’ll have to go with it. Anything can happen of course, but the market has had many chances to extend down and so far doesn’t seem to want to go lower yet. A move higher that fails could set up more conviction on the downside.
The S&P has a more clearly defined downtrend than does the Nasdaq. Momentum has been very choppy as you can see by the saw toothed shape in the double stochastic. Yesterday the market closed on a new low for the move, hitting an area where pundits can now call this down-move an official correction, and today the market moved up to almost erase the loss from yesterday. This market still looks like the path of least resistance is still down. If the market can manage to take out the high of yesterday there could be a good chance for a decent rally. If this happens it would probably be trade-able, but in my opinion should still be viewed as a counter-trend rally within the context of a larger term down-trend. There are too many points of overhead resistance to even think of the trend turning back up.

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