Thursday, August 6, 2009

Key Reversal Day

Is likely in progress. Blow-off tops are finishing their moves in droves today, in multiple asset classes. Because of the strength of the momentum higher in many sectors and asset classes, a double top or close to it (i.e. slight under- or overshoot) is likely. I think we are starting a meaningful correction that should be good for a hard downturn that lasts 1-4 weeks, then a re-test of the highs to set up a momentum divergence and a nasty resumption of the bear market this fall.

Here are two short-term charts to illustrate my thoughts. Both are 15 minute intraday candlestick charts. The first is the NASDAQ ($COMPQ):

Next is copper, using the ETF with ticker JJC as a proxy:

It feels like August of 2007 to me. Here's the S&P 500 in 2007 (using a daily 18 month candlestick chart) as the bull market was topping and my thoughts:

The US Dollar may have bottomed, but a double bottom (again with slight under- or overshoot) would be supportive of this stock market scenario. Gold and Gold stocks should get taken down initially and provide another great buying opportunity later this month. I am looking for Gold to go to the 200 day moving average as the worst case scenario (around $880 right now) and Gold stocks to also move down to their 200 day moving average. Gold stock bulls should be patient and get ready to buy on weakness. Patience will be rewarded.

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