Markets Surge As Gold Topples Off Highs

Today the SPY finished at the highs and managed to take out resistance at $116.50 which now negates the possibility of any bear flag and signals a higher low in the market. The market came back off of the highs around lunch time but had a robust move in the afternoon session for a gain of 1.41% on the day. Gold was down sharply and closed at $1754 on high volume. I closed out my DZZ long for a 13% gain in just two sessions though I do believe there is still some additional downside. After the bell, the CME raised margin requirements on gold by 27% and it that should force some of the longs who haven’t taken profits yet out of the market.

The SPY ripped higher and negated the possible bear flag with today’s close. Volume was light and the move looked much like short covering especially in the later session. I’ve mentioned this over the last two days – traders simply do not want to hold shorts especially ones that they have 20+% profits on going into Jackson Hole and seeing the market higher today likely forced their hand. I think we’ll see a bit of a pullback tomorrow after the monster move today and yesterday, mainly because we’ve had a nice rally and broken through a key technical level, but also because of the pressure that will be on AAPL tomorrow after Steve Jobs’ resignation. For what my opinion is worth, Jobs will still be on the board which really isn’t any different from him being CEO other than he’ll most likely have more time to himself, which quite obviously he has earned. That said, any selloff in AAPL (and there will be one) is overblown but nonetheless will provide a nice excuse for a pullback tomorrow.

Ultimately, I am still leaning towards a rally after Jackson Hole. Again, I think it’s possible that we get a selloff after the meeting on Friday, but going into Labor Day the market will be tired and the low volume will favor the upside. Any selloff during the Fed’s meeting is going to be a fakeout and I don’t expect any kind of new lows to be made.

Gold was down a whopping $79 today after being down about $65 yesterday. The CME raised margins requirements which is something I did not expect to happen until Friday’s Fed meeting but it will have the same relative effect. The blowoff over the last two days tells me that there was major inside info but the technicals also told me that this was likely to be the case anyway which is why I took the DZZ long and covered today. Once again, there will be more downside for gold and commodities but the easy money is not something to pass up and I am out of that position for a nice profit. For the rest of 2011, expect more pressure on commodities as demand in the US drops. Once the hot money comes out of gold, look for the selling to trickle down across the rest of the spider web as well which is not unlike the effect that silver had in May or the effect that oil had in 2008.

Overall I am basically flat going into tomorrow and I probably won’t take any longs until things become clearer going into the Fed meeting. I’d like to pick up some positions given that there is a selloff on Friday during the Fed announcement assuming that analysts panic but no new lows are made. Until then, continue to remain cautious as there is always a chance that something in Europe blows up overnight and throws a wrench into everything.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

One Response to Markets Surge As Gold Topples Off Highs

  1. Aaron Basile says:

    I meant to include this also but $1700 would be a 50% retracement for gold which should be a short term target for the downside.

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