Possible Stock Market Top, Dollar Bottom Today?

[Steven Vincent]

Here are some charts that seem to suggest that this very low volume spike to new highs may have been an exhaustion move in stocks concurrent with a bottom in the US dollar.

On the SPX futures we have an overnight gap up over the long term downtrend off the 2007 high on a holiday after a light volume run. Price was rejected after marginal new highs and the short term uptrend has been broken.

On NDX futures we see that price failed to achieve the upper return line of its intermediate term uptrend making marginal new highs before being rejected. The uptrend (previously violated) from the July low is being threatened as well.

The Dow futures rallied to new highs, piercing its intermediate term return line as well as the downtrend from the 2007 highs creating the kind of "throw over" that is typical of an important top.

The Russell 2000 and financial stocks are showing extreme underperformance and non-confirmation of the new highs.

The US dollar index is still arguably showing a bottoming process. Today's intraday reversal from new lows is not shown.

I would look for a higher volume down day very soon that ends near the lows for the day to indicate that a top is in place. A 2-4% up day for the dollar with a clean technical break of trend resistance should accompany this. If we don't see that kind of action in the next couple of days, then the equities rally and dollar decline are likely to continue.

[BullBearGirl]

So no trade on this yet?

[BullBearGirl]

I'm interested in seeing how gold reacts to this.

[Steven Vincent]

Well I personally am nibbling a little bit on the short side here but I think it may be jumping the gun and I will be quick to stop out. Generally trying to sell short here would be considered "picking a top" which is not recommended. I do think that there are so many bearish factors at play that a very small anticipatory position is OK. But I wouldn't officially call it as a trade, no. "It is what it is until it isn't" and it is still a strong bull trend.

[BullBearGirl]

Thanks Steven. My GBP/USD buy has not triggered yet.

[Steven Vincent]

It may be setting up for another run since it appears that the dollar may break down strongly. Price is back at 1.6610 again. I would keep your buy order in place because if it does recover to that level then likely it is ready to break out.

[Mark Lytle]

Seems reasonable...I have a little spreadsheet that compares Fibonacci time projections, and like everything else, it says we're close to a top...Elliott International published a chart yesterday that showed we are nearing a time point where we have extended an additional 62% in time from the 3/6/09 bottom relative to the 6/11/09 top and that overlaps with a .5 time extension from 10/11/09 to 3/6/09. The dates of those time points are 11/17/09 and 11/18/09 respectively, but that doesn't mean the top couldn't be today...you know how Fibonacci is...My spreadsheet graph output looks like this:

The chart may be hard to read, but the big dark blue spike in the front is the point where the .62 and .5 time projections demonstrate 'closeness' by differing by one day...

[BullBearGirl]

I know this is not a technical indicator, but Marc Faber recommended buying a mining stock just a week or so before the March bottom. Now he's saying he's long the dollar. I know he isn't always right - no one can be - but he's someone I listen to.

A few days ago I posted an article saying that Marc Faber believes gold could go down to $800. Today I read something from him in which he said he didn't really know how gold would react to a dollar rally.

[Don Patterson]

If the dollar rallies hard, something which I believe is more likely than not, then gold can and probably will go to at least $800 and possibly a lot lower. There is massive negative divergence that has been building for sometime on some of the longer timeframes that could provide the fuel for a substantial fall in gold.
I personally am looking to short both gold and the S&P when I feel the turn is coming, which surely cant be long now, quite a cluster of overhead resistance and numerous bearish indicators , however I am going to exercise caution as I have already got burned by trying to jump the gun.
Difficult to control the old greed

[Steven Vincent]

I think we may have to wait for a good old fashioned puking capitulation bottom in the dollar, based on the way it is acting. If we don't get a solid 2-4% up day and a clear technical breakout in the next couple of days then we have a technical failure.

"If a market doesn't do what it should do when it should do it then it is about to do the exact opposite in a big way".

[Steven Vincent]

It's possible that the Dollargeddon scenario that gold bugs have been talking about is actually playing out. Gold is relentless and the dollar does not seem to want to fulfill its technical setup. Another -2% move in the dollar could send gold to $1200 very fast. Silver also looks ready to break out.

[Michael]

its almost imossible to pick a top in the market. the last top was when unemployment was 4.5%, so if a top is accompanied by low unemployment the top is many years away

[Don Patterson]

All time highs are normally associated with extremely low unemployment, at the top in 1929, unemployment in the US was less than 3%. The last top you mention was also an all time high. I believe the top it appears we are approaching will be similar to the top that formed in May 1930 when unemployment had already reached the level we are experiencing today. It was also a 50% retracement from the previous all time high.
like you say a new all time high associated with low unemployment is likely decades away, just like it took 25yrs for the market to recover its high from 1929