Still No Resolution From The Stock Market; Gold Breaking Down

During my absence last week nothing really breath-taking happened in the stock market. We got some follow through after the daily swing last week and until Friday everything looked pretty constructive. Wednesday was a low volume test after four day rally and then Thursday's bullish shakeout signaled a possible break above 1300. But all hopes quickly evaporated on Friday as S&P and Nasdaq printed a very high volume distribution day. Definitely not a good sign. Nevertheless, a 1250 – 1260 area should hold for now, as these are the lines the buying came in in the past. I really don't have much more to say about the stock market right now. I'm basically still waiting for some sort of follow through to the upside or a weak rally that would be shortable. I will expose my detailed trading plan for next week tomorrow.

Gold on the other hand finally provided us some clues of where it wants to go. It wants to go down. I think both double top and triangle consolidation I was speculating about last week are now pretty much off the table. Gold instead made a mini double top and broke under the last swing low. This means that gold should now start a downtrend on the daily scale which should bring it down to about 142 on GLD before any reasonable bounce can be expected.

Now the question is, will that be enough or could gold even break that important support? The answer is nobody knows. The action of precious metals is very much dependent on behavior of the dollar. The dollar ETF UUP clearly wants to penetrate the descending trendline that has been valid for more than a year. I suspect it should not be long until UUP attacks the 22 resistance mark. However, the US dollar is still in a long term bear market. I don't believe we already saw the ultimate low as the accumulation in first two weeky of May was simply not enough to start a new bull market. My best guess is that this rally should evaporate pretty soon. 22 mark is very close and could be breached but it looks like dollar will need at least one more leg down before it becomes cheap enough for a major accumulation by big money. In short, I'll be watching both gold and dollar in search for the right time to buy gold, silver and miners. Until dollar tops on intermediate scale, precious metals are just too risky buy.