Stock indexes resumed the downtrend today. The S&P gapped lower and attempted to recover to the unchanged level. Then the selling came back in, but the S&P managed to rally back at least to the opening price, but sellers came back in the last hour, and the indexes extended the losses in the last ten minutes or so of the session. The reversal bar yesterday looked promising, but the main trend is the real story. And, as I pointed out a couple of posts back, the longer term weekly trend had just come out of the overbought zone, and has declined steadily with a lot of room left to the downside. Short term momentum is quite oversold, obviously. Sentiment is certainly getting negative enough to suggest a counter-trend rally could spring up at any time. The Nasdaq got hit hard as well, and that support level I pointed out yesterday, where the Nasdaq seemed to have bounced a bit, has now been taken out. The advance/decline ratio is resuming the trend back down after having gone sideways for a few weeks. I looks so bad it it will probably trap shorts soon and make those who are selling everything regret it.
The chart above is the Dec Chicago gold contract. Gold had a huge move today, in fact the largest one day dollar move in history. This upmove came within the context of a clear downtrend. I thought it odd that gold didn’t respond much to all the news about the impending collapse of the financial system. I had rallied back up to the declining moving averages, but not with as much enthusiasm as one would think. A financial collapse could be thought of a deflationary, but not in the U.S. where we have the dollar printing presses. Now they will be running full steam. Gold made up for lost time today with the huge rally. It’s still only trading at about the level of early August. It is right up into the fib retracement zone that I have drawn on the chart. But it did take out the pivot of Aug 28th, where I drew the yellow dashed line. Gold is not in an official uptrend. The moving averages should cross soon and pullbacks to that moving average, accompanyed by oversold reading in the momentum indicator, would be indicated. In hindsight it looks like it was a good long entry point when the momentum indicator turned up from the oversold level. But as I’ve said before, I have to only trade in the direction of the main trend, which had been clearly down. I miss many trades having this rule. But before I had that rule, I would lose many times trying to pick a bottom against the trend. This time it would have worked out, but most times it doesn’t. I’m sure many traders were short gold because of the new uptrend in the dollar. This undoubtedly fueled the rally. I won’t chase prices as many of these panic moves don’t last. It will be interesting to observe what happens on the retest back down. If it supports on an uptrending average I’ll probe the long side. These are tough markets to trade from both bulls and bears.