As most of you know by now I decided to take profits on all stock portfolio positions. As of yesterday a warning bell went off as breadth has turned negative even though stocks were at all time highs yesterday. This divergence has occurred at almost every major market peak over the last 70 years, so it's warning I'm going to take seriously. That doesn't mean it guarantees a market top. There have been plenty of false signals over the years also.
For the signals that did correctly predict trouble, the market started down immediately, and that is what has happened today. As of right now I'm treating this as just a normal move into a half cycle low (HCL) that will find support at 1850 and then head back up on the way to Nasdaq 5000. However if we never manage to get back above 1880 then we will have exited at the exact top of the bull market. So at this point I'm content to wait and see if the move into the HCL continues and if it does, will it recover and close back above 1880.
In the Saturday article I noted this week should be the perfect week for gold to breakout of it's consolidation and move above this stubborn $1350 resistance zone. I was looking for a little help from stocks and the dollar. So far it looks like stocks may cooperate and drop down into a HCL. Now we just need the dollar to continue down into it daily cycle low (DCL). It still has plenty of time as today was only day 14. I'm expecting a test of the Oct. lows by the FOMC meeting on the 19th.
With a little help from stocks and the dollar I think gold should be just about ready to break out of this consolidation its been stuck in for the last two weeks. Tomorrow should be the perfect setup for the breakout after the reversal on Monday, and a recovery today.
Today was the fifth test of that $1350 resistance. Once gold breaks through it should trigger a bunch of buy stops and I think we could see a pretty good move in a short period of time. Maybe $1400 by the FOMC meeting if the dollar finishes it's DCL.