Let's start with the stock market since the downside was large. A week ago, I highlighted a bearish Evening Star candlestick pattern. That pattern was short lived and did not mark the high.
Often in a rising stock market, you will see more than one bearish candlestick pattern before a top, which is what one should expect as a measure of exhaustion of markets trending higher.
The chart below reflects another potential Evening Star. This time, we have a bearish divergence on the RSI, which we did not have last time, and the MACD is once again trying to turn down.
The only thing missing in price structure is the follow through of the markets to the down side as confirmation an interim top of some kind might be in place. There's minor support at DOW 11,000ish. The first real level of support is the prior peak at DOW 10,729, which is also where the 50 day moving average stands. A move below this level would create the first significant level of wave overlapping since the entire move higher began.
I'm sticking with my previously expressed thoughts in prior blogs, "that the markets make some kind of high in the end of March or April 2010". We are cutting it very close on a time line basis, and as always, its price and form that are the most important. The markets are due for some kind of corrective behave in price or time, or both.
I've also identified recently, patterns in the long bond market leading turns in the stock market. So far, that seems to be holding true. The bond market below bottomed with an inverted head and shoulders pattern prior to what might be a stock market top, just like it did at the end of 2009. Today's jump in bond prices combined with today's stock selloff continues to confirm this dynamic, which is worth watching.
NOTE: In the long run, I'm no fan of the long bond, but as long as it stays above the 112-113 level, there is no significant bearish pricing action worth noting.
Let's turn our focus to gold. I've discussed in recent blogs, the conflicting short term chart patterns within gold, and the gold market moved higher today in conjunction with the stock market pull back. The GLD has move above its neckline then back tested the neckline, and has moved higher. Those are all bullish indicators, technically.
If you're bullish on the metal, you want to see the GLD continue to grind higher. The inverted head and shoulders pattern calls for a minimum target of 120-121, which would cover the price gap back in December 2010. A fall back below the neckline is bearish. The RSI has not reached over bought levels, so there is more room to support the expected target move.
Stock markets fell hard today, and both safe haven assets (treasuries and gold) climbed in price. Today's market action produced very interesting charts worth watching closely in the coming days.
What's the old adage? Sell in May and Go Away! It surely feels like a time to protect gains and manage risk. Being all in all the time for every tick is not smart investing. You'll never capture every part of every move. Sometimes, you need to take gains and move some cash to the sidelines. Let the market provide a lower risk opportunity to redeploy cash and manage risk with gains in a balanced risk/reward strategy.
Hope all is well.
