Markets across the board are losing steam as sentiment continues to grow more optimistic, but participation backs off.
Interestingly, many readers emailed expecting major declines in the US markets today as a result of the Fed's decision to raise its emergency loan rate a quarter point to .75% - despite that supposedly market-making/market-breaking decision, the markets are actually up today thus far.
This is yet another indicator of what I have been saying here at Investophoria.com - it's not news that drives markets but the sentiment of existing players - people use news as a justification for decisions already made, which were made with little information and under a highly emotional circumstance. Of course they will want justification!
However, the market is its own creature, and since everyone and their mother probably expected this to be bad for the markets, guess what - they magically decide to tack a few more points on to the upside! It will most likely take a sustained drop down for a week or two before this becomes something of "concern" to the average investor, who will by then be looking for a reason to say he sold his stocks.
While there is still some upside potential in most assets the momentum is waning, volume is waning, all measurements of true strength are waning, indicating a top is near.
Anybody feeling particularly bearish right now, watching these markets? Good - that's when you know you should be...
So today was a fairly consolidated day, especially within the context of the rising wedge formation in the broad indices.
The S&P500 has an even more compelling rising wedge formation as well as a double gap, the second of which has been unfilled and should offer some downward magnetism for stock prices next week.
The two highest probability scenarios for Monday are that a good sized spike occurs through the top of the wedge to complete the corrective pattern, and price turn down from there. The second is that negative sentiment already develops over the weekend, resulting in a large gap-down on Monday. The two minor support levels noted on the chart are good indicators of a resumption of the bear market trend if violated.
At most we expect only 1-2 more days of this correction before a resumption (and a larger one) of the downtrend to take stocks broadly lower. This will be bad for gold and silver as well, as they have been in tight sync with stock prices, especially since this correction started (a bit of a kick in the shins for those still saying that gold is currently being treated as real money, and not as a speculative asset).
The dollar rally should also resume next week in full force, and the delayed effect on the price of gold should return in full force.
Have a great weekend folks! I will be spending some time in my office tomorrow sorting through several mountains of paperwork, so if anyone has any questions in the interim I might fire back some replies on Saturday afternoon. The official website is coming along well and we are excited to be developing products that will cater to precious metals enthusiasts, long-term investors, and traders as well. Any other ideas (we've had some excellent suggestions from readers already) are always welcome, and can be sent to my personal email at J_Derek_Blain@hotmail.com
See you Monday!