Why is it that Fridays always seem to be so dull? It’s a question many of us ask on a regular basis. Traders get flat for the weekend in the morning, then the trend typically stays in the same direction to close out the week.
This past Friday was again a trend day, but boy did it defy what’s been happening in the past days, weeks and months. In fact, the negative breadth of the market was something we haven’t seen in over 3 months!
Most have been waiting for something like this for a long, long time. It’s unfortunate that the Egyptian crisis has to be the “catalyst” but it’s about the only kind of thing that can put a stop to what’s been an annoying, fake, and low-volume rally. I for one hope the crisis leads to a better life for the people in that region. It’s going to take some time, though, I’m afraid.
So this brings me to a couple of markets that, if all goes according to plan and the cycles play out, we should get some great swing and day trading opportunities.
Gold -Watching this closely, but it still seems to me to want lower from here. Friday’s pop was nothing more than a fear trade, and even then it failed to trade above Thursday’s high. I will wait on this to get confirmation above 1,348 to take any action, but I’m more looking for the 1,290 – 1,265 areas of support to get long.
Dollar – The US Dollar has now put in a swing low, but I reckon it only gets to 79 or so in just a few days. It’ll be interesting to see, but any further weakness in equities will probably see accompanying $ strength until the Fed steps in for some hair-brained stimulus – a surprise? The stronger dollar would also keep a cap on rising commodity prices in the short term, which is why I am cautious about the long gold trade just yet.
Keep an eye on the dollar, as I think we should see a return to the normal inverse relationship of dollar strength = equity weakness/commodity weakness. The turn south is going to be the time to ride gold/silver as the dollar dives into yearly cycle lows.
S&P – Then there’s the stock market. After Friday’s beat-down, I’m going to now assume we have entered a period of correction and/or consolidation. Look at Monthly, Weekly, Daily charts to see where we are, where we’ve come from and where we might go.
I honestly don’t think we are going to dive straight down into the abyss. My gut says we may eventually, but not right now. I do see a 5-10 day period of correction to match up with the dollar’s rise, and a challenge of support at 1,220 – 1,200 as the worst case.
As for Monday, lot’s of technical areas could come into play. My eyes will be glued to the 1,280-1,285 area, which is about the midpoint of Friday’s range. Any triggers in there will be SOLD.
Pivots for Monday:
- R1 – 1290
- PP – 1280
- S1 – 1261
- S2 – 1251
Have a great week and don’t forget…..trade the extremes!