GLD Sees Some Profit Taking and Markets Bounce

Gold sold off overnight and gapped down on the open. Profit taking in gold was offset by buying in the broad equity markets. Is the correction over and the gold move done? IBD seems to think we are in a confirmed uptrend following today's market action.... We need more evidence. Gold sold off on high volume but has many layers of support as depicted on the GLD chart below. The relief rally in the SPY lacked volume IMO. We seem to be rallying in anticipation of Ben Bernanke's Friday speech, but I doubt he can propel this market back into bull mode.

Longing for a Bear Market Relief Rally

So we're in the midst of a bear market and I'm longing for a robust bear market relief rally, the likes of which we had on October 28, 2008 as depicted on the 5 minute NQ emini futures chart below.



Looking at the daily closes on Friday, I noticed that the QQQ is very close to a retest of the August 9th post FOMC lows, whereas the SPY and DIA have a ways to go. Compare the charts of the SPY and QQQ below.







History doesn't repeat itself, but....if we compare the October 2008 charts of the SPY and QQQ and you'll see what I'm getting at. The SPY held the initial reaction low as support throughout the month of October 2008 and well into November, but the QQQ breached the previous low early on two separate occasions, each time resulting in a reversal and bounce. The second breach preceded that huge parabolic day trade depicted in the upper half of this post.



So be ready if a similar scenario develops next week. I can envision a breach of support in QQQ, but if the SPY and DIA don't confirm, we should get the highly anticipated relief rally.

Technical Picture - Low Volume Contraction Precedes Expansion

This week's price/volume contraction pales in comparison to last week's wide range, interim bottoming formation. However, contraction precedes expansion, and after three days in a tight consolidation, I am expecting expansion very soon. Tomorrow's loaded economic calendar might propel price expansion one way or the other, or not. Watch for reaction to initial claims and CPI in pre-market as well as, existing home sales and Philly Fed at 10:00.



From the two 60 minutes charts of the SPY (above) and the QQQ (below), we note that the price action is constructive - basically base on base. As long as the RSI holds 40 as support, we can look forward to continued recovery - target the ambush zone 62% fib. retracement and bearish gap resistance.

Technical Picture - H&S Top Bears Fruit

Today's price/volume action was due to forced selling from margin calls. All sectors were hit, commodities and precious metals led the way down. Concerns about the global economy - contagion fears in Europe spread to Italy and Japan's central bank opted to to expand its asset purchase plan. As deleveraging takes place, highly-liquid equity markets become the victim, as they offer the most convenient place to raise cash.

Technical Picture - Neckline Break on High Volume

Neckline break of H&S top on high volume. On a measured move basis, target SPY 116.

TUP bear flagging. Looks ready to go tomorrow.

Technical Picture - Few Setups as Markets Await Debt Deal

Markets are paused after an extended run from the 2009 lows. We are in a time correction as markets consolidate sideways. If we make higher highs we can adjust the trendline, but for now we wait and see.

CPC approaching top of bearish sentiment zone.

Stocks I'm watching include DML on TSX (symbol DNN in US.) Positive divergence looks promising.
RENN coiling
AMRN looks promising following Friday's hammer reversal stick.

Watch List - AMRN