Gold! Bonds! Reversals! Oh my!
Oh wait -- I think I forgot the buck, but it seems everyone has moved on from their, oh so bearish stance on the buck, because, well, the buck rallied.
It was curious that it didn't rally much on Tuesday, but it is clearly no longer terribly interested in going down.
But gold was quite interested in the downside, since it gapped down, closing almost near the low of the day. There is some support, as it comes into the mid-$170s, but I must say it felt like no one got terribly upset with the decline. Where were the folks who said they should bail out of gold? Instead I saw folks saying things like this is normal. I say sentiment will likely get more bearish, before this is done. That doesn't mean it can't rebound a bit, but to think it is going to turn around and head back up in a jiffy is not what I'd expect.
Then there are the bonds. We looked at this black downtrend line on the yield of the 10-year last week and it has now cracked right through it. More than that it sliced through resistance at .60 like a hot knife through butter. The red line (around .70%) is the next resistance area and I would expect it to struggle there.
Now let us move on to stocks. Do you realize that breadth stayed (barely) positive on the day? That means there was very little change in most of the indicators. There was no expansion in stocks making new lows and no expansion in stocks making new highs. There was also very little change in sentiment, which surprised me. I mean Nasdaq had its first three-day losing streak since early March and folks shrugged? Is there really that much complacency out there?
Let's take a look at the chart of the Invesco QQQ (QQQ) which we last checked in on Friday. At the time, I said I did not expect it to make it to the top of the channel, without a correction. We have since had three down days. That lower line has been solid support since April. It comes in around $260, and rises as we get into next week.
I like it better when sentiment is bearish or the market is oversold or both to make a call that we will bounce off that line, so I will wait to see if we get that change in sentiment or an oversold condition as we get closer to the line.
One thing to be aware of, though: That we failed to touch the top line on that last rally can often mean that the lower line breaks. This is why I really want to see the indicators line up, before I believe the lower line will hold. It wouldn't surprise me to see Nasdaq rally on Wednesday, just because of the weakness the last few days.
All in all, the only thing we learned from Tuesday's action was that low Daily Sentiment Index readings and high readings should not be ignored as the Volatility Index's single digit reading from Monday and last week's single digit reading in the buck showed us. In addition, the 90-plus readings in the precious metals. They might not matter that day, but they do matter.