We are far enough into the daily cycle, and overbought enough technically and sentiment wise, that this swing should be marking the top and beginning of the move down into the half cycle low. I suspect that it is also going to mark the top of the intermediate cycle too.

Since tomorrow is options expiration I won’t be too surprised if the market closes pretty close to that 1100 level. But next week should probably be a rather bleak one as the market moves down into the half cycle low.

Breadth:

Our new highs/new lows chart has given a sell signal today as the slower 10 day moving average has joined the 5 and rolled over.

More ominous is the move back below 0 on the McClellan oscillator. Intermediate declines always begin with a move below 0.

Bonds:

Short term bonds are also confirming that money has been seeking out safety over the past 3 months. The move has really started to accelerate the last two days though.

Dollar:

If the dollar rallies again tomorrow it will probably seal the deal on Monday marking the daily and intermediate cycle low. If the dollar does rally tomorrow it’s going to be tough to close the market back up at the 1100 level.

When and if the buck closes back above 76 I think we can then safely assume the intermediate term counter trend rally has begun.

Gold:

As I noted this morning gold has now completed a swing high. This late in the cycle the odds are high that this will mark the top of the cycle.

I have a feeling the big reversal today is not signaling a continuation of the move like most of the gold bugs want to believe. Rather I suspect that long tail is pointing the direction of the coming move.

This is how bull markets work. They rally long enough and far enough to convince everyone the trend isn’t going to change. So when we get a pullback everyone thinks it’s a buying opportunity and they jump on it. Which would normally be a smart move,  just not 16 days into a daily cycle that usually doesn’t last much more than 20 days.

Gold is definitely overdue for a shake out. It needs to remove all these riders that jumped on late above $1100. I think the odds are pretty high the shakeout has begun. Now if you are one of those investors who are going to ride out the correction just be prepared for at least three to four weeks of generally lower prices. But also don’t forget that this C-wave is not over and this correction is just setting the stage for what should be the most spectacular rally so far in this bull market.

Short term indicators are still mostly neutral.

Gary

www.garyscommonsense.blogspot.com

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