"It's all one trade" -- that's what the manta has been for months on end. Yet it was only about a week or so ago when the S&P 500 managed to rally without a corresponding decline in the dollar. For all the hoopla in oil, it hasn't budged in a week, yet the S&P has still managed to go up.
This goes for gold, too: It fell sharply on Monday while stocks moved up. Even the copper chart, which I liked a bit more than a week ago, sat out Monday's rally. Further, while bonds managed to go from a sharp down to flat, they have seen practically no movement in the last week as rates on the 10-year note have gone from 1.96% to 2.04%. That's not much relative to the 8% move in the S&P, is it?
There are those who still love those absurd buzz words of "risk on" and "risk off," but in my view those expressions are quickly taking a back seat as we have seen a subtle shift from the "one-trade" game. This is not to say it won't come back but, for now, it has subsided.
As for the Standard & Poor's warning that it may downgrade the debt of some European nations, it is amazing this development showed up right as the S&P 500 was sitting right at resistance yet again. As I noted on Monday, I believe the market will continue to be subject to rumors from Europe, especially this week.
The rally got stopped in its tracks at resistance once again, but breadth improved and held strong throughout the day. The Dow Jones Transportation Index is now 3 points away from a higher high vs. its October high, and the number of stocks making new highs rose a bit from last week -- just enough to scrape out a "better" reading. That tells us resistance on the indices is tough -- and so is resistance on individual stocks.
My own oscillator will read as overbought at the end of this week or early next week. The Nasdaq Momentum Indicator should reach an overbought condition by Thursday. It does seem a bit pat that these overbought readings are set to arrive just as the Europeans will be potentially lowering rates -- and kicking the can down the road yet again.
As noted above, gold had a difficult day on Monday. I have not liked this chart for some time now, as the metal has just felt over-owned to me. You can see that gold is now heading down toward $1,700 per ounce, where there is a decent uptrend line. I would look for it to break that level and scare folks, and perhaps trade down into the support around $1,675 before rallying again, back to the underside of the uptrend line.
In sum, the waters remain relatively muddy as the market sits at resistance and heads toward an overbought reading.