Let's start with the fact the markets are currently risk averse as a result of the European situation. As a result, we've seen the dollar rally strongly, which has led to a drop in commodities and a rise in bond prices. Stocks are mixed
Gold is priced in dollars. Therefore, it usually moves inversely to the dollar. The chart above is a three year chart of the UUP and GLD ETF. However, gold and the dollar have moved in tandem for the last several months. The questions is this: how long can that last, especially as other commodities are getting hammered.
So long as we're comparing commodities, here is a chart of the FXI (China) and DBB (industrial metals).
Chinese demand -- as represented by an increasing stock market -- is a clear driver of base metals demand. As such, an increasing Chinese stock market drives prices higher and lower.
Let's take a closer look at the base metals ETF:
We've seen some very strong downward bars (a) on strong volume (c). Also note the shorter EMAs are moving lower, the shorter EMAs are beloe the longer EMAs and prices are below the longer EMAs. Finally, prices are now below the 200 day EMA - a bear market.
However, base metals were here before -- at the beginning of the year, in fact -- and bounced back.
But from an even longer perspective, notice that prices have broken the uptrend started at the beginning of 2009 and may be printing a double top. However, a double top should have volume peaks at the peaks. In contrast, there charts have volume peaks in the troughs.
The long-end of the Treasury market is still above the 200 day EMA on decent volume. My guess is prices are going to consolidated around this area for the next week or so.
Finally we have yesterday's turnaround in the equity markets. The pattern is simple: the indexes dropped until the turned around, forming a "v" pattern. The main point here is the psychological importance of a mid-day turnaround. It can indicate there is a marked change in the underlying market psychology. Yesterday the big news was the euro stopped falling mid-day. For Us equities to keep up their turnaround, we need more of that type of move in the euro.
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