As I mentioned last week and late Friday (as posted earlier this a.m.), I was looking for that "scary" move up that would shake out shorts, today's gains achieve that effect and we are starting to see the distribution cycle underway; it's a little more developed in certain averages, but we want to see them all hit negative on the 15 min chart to say a reversal to the downside is coming. The entire point of a bounce these days is to create volume and shakeout traders which go hand in hand, this is the way High Frequency Trading makes money so the moves tend to be even more volatile then what we've seen in the past decade. I've compared the market to a pendulum which swings way too far in one direction and then way too far in the other. Being we are also in what I'm fairly certain is a top, the volatility increases as well as a matter of historical fact so that compounds the situation. However, all in all, this is exactly what was called for last week and what has been expected. This behavior can be very good for us as it allows us to enter or add to good short positions at a better cost basis.
Now we are on watch for the divergences to all meet up and confirm around the 15 minute chart, then we'll know we are at a high probability reversal.
As for precious metals...
GLD, I believe is closer then SLV to a reversal. There's a negative divergence on this 15 min. chart so today may see a bearish candle on the close. This is hard to reconcile with all of the news stories we see about the demand for Silver and especially gold, but usually when I argue with a chart, I come out on the wrong side.
In SLV we are seeing a negative divergence forming this morning on the 1 min chart. The 5 and 10 min chart also fail to confirm, but as I also said in the last update on SLV/GLD, "SLV looks stronger and may have another day in it beyond GLD" so again, we'll see if and how quickly the negative pile up into the 15 min chart. As far as today's price action, much like Fridays SPY calls with heavy open interest at $129/$120 were pinned and today we saw what was expected, a move beyond $129, we are seeing the same head fake action in GLD and SLV. For traders wanting to short either, this gives you excellent positioning, lower risk, higher probabilities and the ability through risk management to take on a bigger position, so if you are trading on the short side of wither of the PM's, today's action is a market gift. We just want the high probability aspect and that will occur when our negative divergences on both are complete at the 15 min charts or beyond.
Currencies....
As mentioned this morning, this is a make it/break it point for the $USD. Things have changed rapidly for our currency with the catastrophe in Japan and several other unexpected/un-discountable events. However, the heaviest weighted component of the Dollar Index is the Euro at 50%. So far this week the Euro has traded relatively flat with some volatility taking shape this morning, that could be a precursor to weakness in the euro, pushing the dollar Index higher.
As for the Yen below, it remains relatively safe from intervention like we saw last week in the red box so long as it doesn't threaten the $80 level. Last week it came very close, but has since recovered. I'm not sure how much weight the USD/JPY has on the Dollar Index, but so far it seems that conditions are fairly stable for the dollar to try for a recovery to the upside.
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