USD Update

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This chart shows the extreme length of trendlessness in the US Dollar Index. The ADX being trendless for so long is basically a basing activity setting the stage for the next strong trend. I think this will be up. Look for the ADX to turn back up above 20 with the +DI above -DI. That would indicate a new uptrend. That will likely correlate with declining commodities. So again, this view would support a top in gold close at hand.

Speaking of gold........Over the last 3 weeks as gold made some sizeable gains, the CoT data showed that large speculators did not increase long holdings, they actually fell some. So that basically means they are out of cash to devote to this trend. They are trend followers, so this should be a sign of trend exhaustion. Additionally, the "smart money" commercial hedgers did increase net long by a correspondingly small amount, when they usually go against the price trend. This basically means that the last 3 weeks have caught the smart money in a blow-off short-covering rally. However with no ability/cash for the large specs to push the trend further, I believe the message is that gold IS in its final gasp before a major correction.

As a side note, today stocks were up, bonds were up, commodities were up, AND the US Dollar was up. So all the major US asset classes were up. Usually there are some inverse correlations that keep this from being common. I have seen others mention these "all up" days before. The takeaway was that it often preceeded at least a brief drop in stocks. So while I don't have any data on this, it may be a clue that some selling may be in store after a "buy the U.S." day.

Market Now At Resistance Zone - Bearish Set-Up

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The market action is developing about perfectly for a bearish trade at these levels. I had showed that after prior waterfall declines the tendency was for the market to rally to near the high of the second candlestick prior to the low, and that we should probably expect a flat type pattern to from here. Well we now have the market forming a nice upward ABC potential pattern here which is right at the downward blue trendline which may be resistance and price just exceeded the high of the second candlestick. The retracement is right in the reversal sweet spot based on prior waterfall declines.

The fast stochastics has now had time to cycle back to overbought. When the red (%D) line goes back below 80, that has been a good indicator on the recent cycles that a high was made, and a stop could go in above the recent swing high. So that is the plan here. Instead of shorting right here, wait for a little confirmation and stochastics to turn down, then go short with a stop above the high. The target will be for a new corrective low, at which point we can initiate a trailing type strategy.

IF this happens, based off of historical corrections, it would indicate we are likely, in fact, in a bear market rather than a deep bull market correction. The market is obviously coming out of a heavily oversold condition so it is possible that it continues to rise. So waiting for the stochastics signal will help to avoid jumping here while there is no confirmation of reversal.

QLD Stopped Out

The QLD trade was stopped out at breakeven today. It looks like the next trade will be either with further upside for a few more days, in which case a short may be in order, OR after a sharp downside break out of what may be a triangle consolidation forming here, in which case we would look to go long at some point after a break of the August lows.

SLV Update

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As noted recently, silver looks very nice on this short entry. It touched the upper wedge line, and then close back below the high from earlier in the month where we got stopped out. On this entry, we now have nice daily chart bearish divergence on the technicals, with the weekly trend weakening and soon to turn down.

Again I expect an aggressive decline here, that should proceed to the 26 level on SLV before a major rally attempt, so I will likely suggest exiting this short at the 26 level, though the overall context of the markets suggests to me that the decline will continue below that level before whatever bear phase is coming is complete. What would probably be prudent is to exit half the position at 26 with a breakeven stop on the rest, and wait for any rally attempt to fail and break to new lows before lowering the stop on the rest.

Gold Update - Major Top Likely Made

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This chart shows that the recent leg up in gold is likely over based off this 2 day correction. Not shown is that price spiked above the upper channel line of this leg up on Monday and Tuesday.

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Applying the same logic to the entire 2008-2011 bull market, we see the same thing. A spike above the upper channel line. And now the beginning of an aggressive decline. See the notes on the chart, but a move to the 1625 area would be a more definite sign that this bull market is over.

I may have shown this the other day, but this price high is also near the upper channel line from the line connecting the 2006-2008 highs. That is the main channel of the entire secular bull market in gold over the last decade.

Point being, we may be seeing a MAJOR top in gold here. There is just no good technical reason to be, get, or remain long gold here. At a minimum, wait for a correction and re-evaluate after price falls in line with normal historical corrections.

New SLV Trade

Short SLV at the market with a GTC buy stop at 43.00. 38.30 is blog entry.

QLD Update

Move the stop on QLD to breakeven @ 69.93.