Stocks, Gold lower

Stock indexes dropped sharply today right on schedule. Prices on the S&P reversed right on the 50% retracement level as you can see on the chart from yesterday. Several momentum indicators turned down yesterday as well. The double stochastic also had the first kink down, although it wasn’t as sharp and clear as I would have liked, as I mentioned yesterday. The disappointing ISM report and the deteriorating technical situation caused a big gap down right on the open of the day session. In fact half the drop was the gap, so putting on put positions on the open would have only captured half the gain instead of the huge percentage gain indicated by the daily net change. It looks like a re-test of the recent lows is likely. The big question is whether that low will create a double bottom, or if this is another leg down in the bear market and prices take out that low like a hot knife through butter. It will be important to watch price action if and when prices get back to the lows around Jan 22nd. The advance/decline ratio might give a leading clue if that ratio confirms a new low in price or create a divergence. It is also obviously possible to reverse prior to testing those lows, as anything can happen, but that seems less likely.
The Gold market let out some more air as well today. I’ve been pointing out the pivot failure. I noticed a commentator on CNBC today that pointed out the same pivot failure, so that’s a bit of a worry for the bearish case. The trend is still up, and prices have come right back down to the uptrending moving average lines, and short-term momentum is approaching the oversold level. If the uptrend is intact prices should make another attempt at a high in here. If the trend is reversing down price should take out the low of Jan 22nd (855.20 basis April). If that happens it is important to watch price action around that area. As short-term bearish as I am on the gold market I have to respect the uptrend that is still in place. I know these upmoves can die hard as bulls still have the psychology to think the dips are bargains. Maybe they are, but as I’ve said many times on this blog, the bull case is quite crowded and extended. The market, in my opinion, needs to knock the weak hands off the bandwagon before another major upleg can occur. Of course, the market doesn’t have to do that. That’s just my idea of a likely scenario. Gold may very well go straight up and prove all the traders and funds correct that are hanging on to the very overcrowded bandwagon. Also, the longer term uptrend is getting a bit old in time, in my opinion. It seems all the fundamentals that have caused this uptrend are well known by everyone, including the deepest possible upcoming rate cuts.

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