For those of you who haven't already done so, I highly recommend a read of Martin Goldberg's latest piece in which he keenly elaborates on the point that commodities, particularly precious metals, have finally decoupled from stocks and that this divergence likely indicates that metals are ready to move up on their own while stocks turns south. It is a point I indirectly touched upon in yesterday's post and anticipated with more detailed discussion in a couple of my Macro Center posts earlier this year. Admittedly, I did not anticipate the decoupling to begin with a swoon in metals prices... I thought both stocks and metals would drop together before the decoupling occurred... but having events unfold as they are does not change the game plan. The fact remains that this decoupling is sending a very important signal of impending change.
From a psychological point of view, it is a near perfect time to be selling stocks. Anything that can go right, in the eyes of the bulls, has gone right. Optimism is running rampant on Wall Street. The market withstood a summer shakeout and is knocking on the door of new highs. Inflation appears to be under control, at least as measured by energy, gold, and bogus government figures. There are no conspicuous signs of the feared consumer meltdown. Furthermore, posts on bearish blogs are expressing about as much exasperation as I've ever seen. It seems like the environment is ripe for disillusionment to begin setting in.
As usual, there is not much to be said about an options expiration Friday. I do find it interesting that both the SPX and NDX posted potentially bearish candles with today's action. Along with bearish RSI divergences, the technical action could be supporting the psychological view discussed above. Monday's action should tell us more about the validity of these indicators.