I hope everyone is refreshed from their long-weekends. The coming week is likely to be one of high importance in determining if the recent peak at 1039 was in fact a lasting market top or just a speed bump.
Last week, I outlined that "the probabilities have materially shifted in favour of a lasting market top." Tuesday's market action provided further confirmation to this, registering a 90% down day. The remainder of the week was characterized by very low volume, declining volatility and moderately higher prices, achieving a 50% retracement of the down move. I am skeptical of the legitimacy of the move as it was on such low volume going into a holiday. However, price is the final arbiter.
In Elliott terms, this looks to be a 2nd wave of some degree, which means that it can retrace all the way back to the high - but no further. Any push past the August 28th high would be very bullish and suggestive of a price target in the 1100 area. But since market action is likely to be of very high volume from Tuesday onward, any push higher that proves it can hold will be enough to turn me more bullish for a trade.
Below is an hourly chart of the last month for the S&P 500. The horizontal lines are common fibonacci retracement levels for wave 2 moves.
98 NYSE issues managed to make new 52week highs on Friday. Along with a fairly solid closing TICKS reading and strong breadth, this throws a bit of a wrench in the plans for a bear raid.
The big story of the week was the sharp move higher in gold, busting out of a triangle pattern and challenging the $1000 mark once again. Readers will find it interesting that gold managed to do this both with higher US Treasury prices and without much of a move in the US Dollar. The internet is filled with theories as to "why" this is happening and "what gold knows" that other asset classes apparently don't. I think Dennis Gartman put it best in an interview I saw with him last week sometime, when he said (paraphrased) 'Gold isn't moving in reaction to anything. It's just moving. It is a market unto itself and right now it looks like it wants to go higher.' That is a simplicity I can agree with.
The aforementioned US Dollar Index appears to have failed in its breakout attempt and looks destined to make new YTD lows before putting in a bottom. This is obviously important to the direction of equities, so it bears keeping in mind.
That's all for now.
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