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The S&P 500 is forming a channeling pattern with a slight contracting bias over the last month. There has been no confirmation at this point that the trend has shifted down for the intermediate term. However, it would take a move above last week's highs by Monday afternoon to clearly keep the price logic in an upward trend. Maybe the market will move significantly following next week's FOMC meeting. Clearly both stocks and gold have basically traded tightly for a month and a half.
At this point I expect the market to drift sideways to higher into next week. The overhead large gap down from last week has now been filled on SPY but not on QQQ or IWM. It would take 1.5% or more gains to fill those gaps on those indexes. If the downtrend is to continue, then we should expect the market to find resistance at that gap level after testing it. After filling prior gaps, the trend often continues, so it is possible that the markets work back up to that gap, and then resume lower, but at this point there is no clear indication. We now also have a large unfilled gap BELOW prices from yesterday's move. In my opinion, any move below this week's low is likely a major failure for the stock index bulls, and would likely lead to substantial follow through selling.
Gold has reversed into a daily Parabolic SAR buy signal and has held above the upper boundary on the recently noted contracting triangle the last day or two. So far the upside breakout is holding, so we may expect gold to continue to rally for a few weeks. But, any move back into the triangle would be suspect for the bullish case in gold.
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