By Mike Paulenoff, MPTrader.com. (www.mptrader.com)
Gold had a powerful move today, which stood out most for me in a day that was relatively flat for equities. Gold was up $8 on a spot basis, and it actually broke out above 367, which was a fairly significant trendline. That's an intermediate-term congestion area going back to February, where the trendline started at 390 and came through today at 367. Not only did gold clear 367 today, it closed at almost 373 in the spot, which was right off the high.
At the same time gold has been going up, we basically had a pivot upside reversal on a micro basis in the stock indexes Tuesday which rocketed the market yesterday, and the market held its gains throughout most of today and tried to make new highs. In the case of the Nasdaq E-Mini, it made new highs for the recovery off of yesterday afternoon's lows.
So with gold breaking out and the market up as well, you have to say to yourself, Can the two markets go up concurrently and, if they can, for how long?
In my experience, yes they can go up together for a little while, but something has to give. One consideration is that the euro made a significant corrective low a couple days ago, and that has started to form a secondary base around 108 after having been as high as about 119. So it looks like it's had a healthy correction, and that euro is now trying to build a base to go up again. That fits in with the gold market, giving us two markets that usually trade inversely to the stock market.
With that in mind, I'm looking at the stock market's move off of the Tuesday's pivot lows -- giving us strength in the indices on Tuesday, Wednesday and possibly Thursday morning -- as a correction of the decline that started last Friday and ended Tuesday afternoon. If my work proves correct, after tomorrow morning we will roll over to the downside again and embark on a new down move in the market that is part of and an extension of the decline that started at last Friday's highs.
That should extend into the end of the week and probably pick up again after the weekend. So if my work is right, you will see more upward pressure from gold and the euro and a downward pressure on the stock market into early next week.