Will Gold Make A Double Top?

After a big drop gold is finally showing some strength. Last Friday we saw a very nice big volume follow through day. After Thursday's test GLD spiked higher, which is also a very positive sign. It looks like gold is ready to attack the all time highs in the following week or two.

Weekly chart is not that appealing. There is a very obvious three week wedging rally which is never a good sign, especially after such high volume drop. Also, gold is now coming into the timing band for a considerable pullback at least down to the trendline that has been valid for almost two years now.

In brief, this smells like a double top formation. Any long term buying into this rally is a very risky business in my opinion. Actually, I expect that gold will form a 2B reversal. If you don't know what 2B reversal is, just google it. If that happens, it should be a high probability short.

Precious metals sector is high dependent upon behavior of the dollar. So let's see what the dollar ETF UUP is doing on the weekly chart.

It was expected that dollar will rebound after a heavy accumulation week. However, such rebounds almost always get tested. It wouldn't surprise me if the dollar would actually make a new low. This would correspond with gold making new highs. Last week's bearish engulfing candle is telling. Now we should wait and see.

A Bull Flag On SPX

We are four weeks into this correction now and there is still no follow through into any direction. As seen from the SPX daily chart below, market is still caught in a descending channel. Furthermore, the Friday action suggests the red resistance line should hold into the next week also. We got the third wedging rally in three weeks and index sold off immediately once it approached the line. Volume was exceptionally low, but this could be due to the prolongued weekend.

The weekly picture is much more promising. Three weeks of slow descending with tight closes and low volume gives the apperance of a very strong bull flag. Once and if SPX breaks above the red line it could take off much higher from here.

All in all we still have no confirmation that the market is willing to make a substantial move into any direction. Until we get one I will stay on the sidelines and wait for my opportunity.