In other recent pullbacks we have seen divergence between the NASDAQ and other indexes – first the NASDAQ dropped while the S&P 500 and Dow stayed relatively strong – then we saw the Dow and S&P 500 pullback while the NASDAQ remained strong. This week all three of the headline indexes declined together and did so with gusto.
Ongoing strength in the US Dollar doesn’t bode well for Gold. And, as we have mentioned before, there are national and private entities (central banks, sovereign wealth funds, hedge funds, investment banks, etc.) with the firepower to push the markets around to some extent. It is likely that there are numerous stops sitting below the double-bottom and running stops is one of the ways that these big traders make serious money. Don’t be surprised to see the double-bottom fail or to see price head quickly lower as the stops are run and capitulation selling kicks in.
We need to trade the markets in front of us and not the markets we expect or believe we should be seeing. If you lean to the bearish side these days it can be challenging to take bullish trades. The SPX and MDY charts, however, are suggesting that prices could bounce higher in the coming week. Let's look at some charts now with the idea that we will trade this rebound to the upside.