Can Anyone Say Uncertainty

Equities

Again we can start by saying that the S&P500 (SPY) closed the week close to all-time highs. Traditionally this is not how the top of the market is made and a close at the highs in turn creates a weak high, for example, we see no sign of buyers rejecting prices.

I know that’s what we said last week but it’s still applicable and illustrates how bullish the markets really are.

So we are seeing the market repeating previous trajectory, if we look at the S&P 500 fractal (now in its third week) we can see that this rally is still in line with previous price action.

We thought there was a very good possibility that equities would roll over last week, but we did update on clients on Tuesday morning with a target of 2,550 and said it was more likely to be delayed until this coming week. We can see by the above comparison, which is at the top of the channel.

Honestly to pick the end any blow off is a very much a fool’s errand, so it is safer and of course more profitable to recognize what it is happening and just go with it. So while we did originally have a target of 2,510 to 2520, we did advise or short there and we continue to trade stocks on the long.

We believe that buying long dated puts could work, but before we advise that course, we would like to see some reversal and breakdown first. So what are we looking for? We believe that we should see failed high possibly as early as the beginning of next week followed by a break of the channels in the chart above would and that would be a signal that we should change strategy.

Metals

We were tempted to advise and move to buy back some gold (GLD) late last week as bonds (TLT) and the dollar (UUP) reached our internal targets.

Unfortunately, gold did not quite reach the 200 DMA (trend lines) that we were looking for. It is common to see markets bounce before good support comes in; it makes all those anxiously waiting to buy question if they missed the low or best buy in price; but this may mean that you end up chasing the price higher right before price heads back down. This is not a game we want to play.

So the question we find ourselves asking is if US$1,260/oz will stick or reverse down to US$1,250/oz.

In the bigger picture this may not make that much of a difference. The repeating gold range and the interplay between TLT (Bonds) and UUP (Dollar) make the below path likely over the medium term.