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February 2, 2009

The Obama Effect

Welcome to February. There were no big surprises in the Groundhog's Day action, but the session provided interesting action nonetheless. Let's start with the precious topic of gold. How many pattern traders do you think chased Friday's breakout?

gold chart

The miners are looking kind of tired, too.

stock chart

Price could easily return to the trend line marked on the chart... a trend that would put GDX in the $60s by year-end if held, by the way. To answer the pressing question in everyone's head: yes, today's action does swing my bias back to the concept of one more big sell-off in gold. You may have surmised from the weekend post that I really never wanted to let go of the idea. But I'm not short, yet. There are too many head fakes being delivered these days. I will wait for a reliable setup in gold's action before making a move.

Another note from the weekend post was that if the long bond were going to renew its rally, now would be the time to start.

bond chart

As may have been anticipated, The SPX held at the lower triangle bound:

stock index chart

A recovery right off the triangle boundary helps validate the triangle, but the weak finish doesn't inspire confidence that the triangle will hold. In fact, one of my favorite indicators says there may be quite the sell-off if it breaks.

market indicator chart

Despite the 12% drop off the January high, bullishnes is rising. The CBOE put/call ratio is pushing levels that typically mark significant tops. I'm calling this phenonmenon the Obama Effect, and it's not just contained to the market. I wear a regular path into the floors of the local mall... it's my way of exercising when the weather is too unpleasant for trails. I also enjoy making snide remarks to myself about the idiotic behavior of consumers. But I digress. The two weekends after the inauguration saw significant spikes in mall traffic. In fact, the weekend immediately after our new President took office seemed busier than the weekend before Christmas. When this effect wears off, I think we're in for another psychological crash which may translate into a market crash, as well.

Just in case you haven't done the math already, the projection for downside resolution of the triangle is SPX 480.

 

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