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July 7, 2009

Orderly Behavior

Regulars probably showed up tonight expecting to see a nice diatribe about how the stock market decline should now accelerate since the S&P 500 posted a significant close beneath the 65-day moving average. However, something is bothering me about this decline: so far, it has been way too orderly. The selling has been halted just shy of important support levels twice in three days:

s&p 500 daily chart

Impulsive stock market declines are not orderly... quite the opposite. Unless we see some reckless selling in the near future, I'm going to be concerned about a bear trap (a little concerned, but not too much). Perhaps things will get nasty once the SPX 875 pivot is taken out. In any case, I'm not losing sleep over it. As long as we stay beneath the 65DMA, I am staying short. A good sign for bears is that despite a decline into a significant pivot... and on an uptick in volume... there was no buying-on-weakness to be seen in the spyders.

As you all know, I've been stalking precious metals for a panic sell day from which I can relieve the panickers of their positions. I believe tomorrow has potential:

gold price chart

Okay, the the magic goggles whiffed on the last couple of swings, but I haven't given up on them. In fact, I shorted some gold this evening, and if gold is not down hard in the morning, I will close out. Please note that I am not net short precious metals. I am still quite long, actually. The market has simply provided an interesting juncture for a hedge.

The dollar chart supports my gold read as it looks quite prepared for a leap higher. If so, perhaps stocks will sink into the desired level of disorderliness, as well. Now, I know I've pounded the table about the idea that precious metals will rise regardless of the dollar action since every central bank is now printing money on an abusive scale. However, gold is not going to go up every day, and when we are looking for an ending move, the dollar can certainly still play the roll of catalyst.

Oil has posted five straight down days while coughing up about $8 per barrel.

oil price chart

It seems almost a given that oil will revisit the $55 level, but I'm not counting on it going straight there. If you look at the 2008 decline, you will see a chart riddled with nasty counter-trend moves. I've already reduced my oil short (probably a little early since we're close to $60 now), and I intend to re-initiate on any snap-back. This is not a market I feel comfortable just riding out on the bear side.

My travel schedule lights up again tomorrow, so posting is going to become sporadic through the end of the month. I'll try to frequent the comments section and will get some charts up in a regular post when I can.


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