Although stocks fell sharply last week, with the steepest sell-off on Thursday, (in a holiday shortened week on extremely light volume) Market Breadth failed to keep up with the decline. The current correction should therefore be limited to about 6%, or SPY 227. Institutions continue to lighten portfolios, with a 6 week high in Big Block/Volume. In terms of duration, there’s likely another 4-5 weeks of choppy trading, before a SPY 227 print shows up. On the subsequent rally, we do not expect to see new highs. Instead, there should be a big fall-off in the outperformance in the New Economy sector, which is a necessary ingredient for a much steeper decline, to SPY 209.66, the general area that previously held resistance since December 2014.
Spot gold had a strong week, rising $32 to 1287, a 5 month high, clearly reinforcing its close above the 55 week mvg avg, (1236.44) and decisively closing above our Weekly 89 line. The next hurdle will be spot 1300 – 1325 (GLD 126.27) which will be met by the Cartel firing bazookas, in another last-ditch attempt to suppress price. However, we don’t rule out an attempt to first push gold back to its break-out point GLD 120.13 (spot 1262) before seeking higher levels. The XAU rallied to a 7 week high into Fib resistance 89.72, on very light volume, but showed weakness on Thursday despite the metals big day, closing 89.40. With the shares making a 7 week high compared to the metal, a pullback is likely. Fib resistance XAU 93.01 will prove formidable and may take several weeks to clear.
With the Donald calling for a weaker Dollar, the Dollar (UUP) fell slightly to 25.97. UUP 26.08 – 26.23 proved formidable resistance in any case.(Actual high 26.16!). A sharp close under UUP 25.73 (Daily 89 line) will start the ball rolling to a bear market.