Stocks end session lower after failed rally

sp0130.pngThe Fed cut the funds rate and the discount rate each a half percent, as expected. The Fed would have shown more backbone by cutting a quarter and not caring what the stock market did, but they didn’t ask me. The market is going to go where it wants to go. Pushing on a string won’t prop it up. Bear markets will express themselves fully, regardless of manipulation.
After the rate cut announcement the market rallied sharply, erasing an early loss, with the Dow going up around 200 points. Then there was an announcement about down-grades on bond insurers, and the market lost all the gains and finished the session down in all the major averages. The chart to the left shows the S&P etf being clearly in a downtrend. There had been a counter-trend rally that looked like it was going to extend to the upper down-trend line (darker blue line). Momentum is now overbought and the last candle to the right looks like an upthrust. The path of least resistance now looks to be down for at least a test of the lows. The Fed can’t, or at least shouldn’t, come to the rescue of the market with another cut so soon. Of course if the market can somehow muster the strength to overcome the top of the upthrust bar from today, then I’ll have to revise my analysis. There are always two sides to be considered. It’s difficult to find much of a case for the bullish side at the moment, but anything can happen.
gold0130.pngThe gold market rallied after the Fed announcement after being lower all morning. Of course the Fed announcement came 45 minutes after the day session gold contract stopped trading, but the electronic CBOT contract and the etf were trading. The chart to the right shows the pivot around the 916 area at the high around mid-January (yellow line drawn from those highs). Today the gold market tested that area prior to the Fed announcement. The the dollar came under renewed selling pressure. The half point cut was expected and I would have thought it was already priced in, but apparently not. There may have been some wording that was interpreted to be even more bearish for the already bearish dollar. Isn’t all the bad news out? The second bar to the right is the day session prices, and you can see a little higher price on the bar to the very right, which is the session that started after the day session close and is on-going as I write this. So far the test of that yellow line is successful, but it wouldn’t take much to negate it. If it fails tomorrow there would be a nasty looking upthrust left on the bar from the Wednesday session. The etf would not show that upthrust due to the different trading hours. My gut says the gold market is far too one sided to the bullish side. Also, volume seems to have declined a bit on this last up-leg. It is difficult to get accurate volume and open interest readings as the active contract is rolling from Feb to April. My data feed doesn’t seem to be able to combine those numbers, so for volume I’m just looking at the etf, which is continuous.

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