As a matter of fact, today’s intraday high was only about 5 points from tagging that level. So the battle still rages on between those traders holding out for the full move up into resistance and those who have had enough.

Now we already know institutional money has been selling into this rally. That’s a big negative in my book. Especially since just about every intermediate decline for the last 4 years has been preceded by one or more of these large negative money flow days. We know the Nasdaq 100 COT levels for commercial hedgers has reached levels that have put pressure on rallies in the past. Insider selling has reached extreme levels. Dumb money confidence recently tagged the 63 level - a level that has often led to declines. Retail traders level of put buying has dropped off the chart. Dumb money sees no need to buy protection at all. Again, usually a sign of extreme complacency.

I don’t know about you but when the average retail trader is sure the market can’t go down I start to get nervous. Even more interesting is the fact that large traders also don’t believe a correction is possible and their level of put buying has dropped even further than Moe Ronn’s. Folks, apparently no one thinks the market can correct. One thing I’ve learned is that when everyone is thinking the same thing then no one is thinking.

I’m going to add to that the recent Investors Intelligence numbers. This week’s survey had bearish advisors at the third lowest reading in twenty years. This kind of complacency hasn’t led to positive results over the next month. Considering we have a cycle low coming due in the next 3-4 weeks, I’d say we have another big restriction to further sustained upside.

Gold:

Quite the debate has been raging on the blog lately as to whether I made a huge mistake by trimming my positions into this rally. Now let me say this; If you think that gold is never going to correct again then exiting any of one’s position is a mistake.

If you think the HUI will continue higher never to see the 500 level ever again, even though it was 42% above the 200 DMA today and there has only been four other rallies that have managed more extreme moves, then exiting any of one’s positions is a mistake. (I would point out that those other four instances of extreme moves above the mean quickly resulted in violent corrections averaging -22% in a month or less)

If you do think that gold and miners will correct, but you believe you can time the top of the move perfectly then yes, exiting before that top is a mistake.

Now first off let me assure you that the only way any of us are going to time a top perfectly is with luck. Unfortunately luck isn’t a terribly dependable investment tool. So I think we can throw that scenario out.

Next I’m going to show you a chart of the S&P and the HUI.

As I’ve pointed out many times cycle lows in the stock market tend to pressure everything and that includes miners. Keep in mind that the stock market is now on day 21 of this daily cycle. Unless you also think that the stock market is never going to correct again then we can expect a move down in mining stocks right along with the stock market at the next cycle low.

As that low is due in late December or early January that would probably be a better buy point, especially if one wants to enter option positions like I do. Why? Because I have no desire to watch a month’s worth of time value evaporate as the miners work up and then back down into the cycle low. It would be much better for me to let someone else lose the money. What can I say, I’m a bit selfish that way.

Finally I’m going to show you the Point & Figure chart of gold. Keep in mind the correction occurred on a news event and on a holiday shortened day with very low volume. If we throw out that anomaly and factor in tonight’s move we have a point and figure chart with 19 X’s in a row. That my friends is a seriously overbought market.

Short term indicators are sliding back into the neutral zone after today’s slight pullback.

Gary

www.garyscommonsense.blogspot.com

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