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Constructive Rest for S&P 500, while Gold Rockets


CONSTRUCTIVE REST FOR SPX, WHILE GOLD ROCKETS
By Mike Paulenoff, MPTrader.com (www.mptrader.com)

The market ended Friday with not much action in the overall averages, but in certain sectors like pharmaceuticals, oil, gold, and bonds there certainly was intense, one-directional action.

Spot gold prices, for example, rocketed from around $585 before the FOMC statement to $617 Friday afternoon as the recovery rally picks up momentum. My work points to still higher prices into the area of the 50-day moving average at $635-650 prior to my expectations for the next rest-digestion period.

The PPH (Pharmaceutical ETF) continues to act extremely strong off its upside pivot reversal from Tuesday's low at 68.21 -- and projects next into the 70.50/60 target zone. My intermediate work argues that this strength represents only the initial leg of a move that should revisit the March high above 74. We remain long, looking for a place and timeframe to add to our 50% position (at 69.06 from yesterday).

As for what's ahead for the equity indices, although the S&P 500 (SPX) circled with little change on Friday, lacking upside follow-through from Thursday's powerful upmove, the fact that the index did not sell off much at all is a sign of intense relative strength, especially since the SPX has stalled right at its "swing" target off of the 6/14 low of 1219.29.

At 1276-78, the upleg off of Thursday's low at 1237.59 equals the length of the upleg off of the 6/14 low from 1219.29 to 1258.64. If the "swing move" were a completed recovery rally, then we should expect the SPX to sell off sharply from current levels. However, a high-level consolidation around the swing target area could be construed as a very constructive rest-digestion period prior to another upleg that projects next to 1290.

For the time being, my work argues that we treat the SPX within the more bullish of the two scenarios.

Mike Paulenoff is author of the MPTrader.com ETF Trading Diary (www.mptrader.com), a real-time diary of his technical analysis on equity markets, futures, metals, currencies and Treasuries.

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