MARKET GIVES BACK FRIDAY'S GAINS -- GOLD BOUNCING FROM CHART SUPPORT
DOW BACK UNDER 200-DAY AVERAGE... All of the positive intermarket trends of last Friday are being reversed today. The Dow has already lost 3% and has given back all of the Friday's gain and more. More importantly, today's price drop puts the Dow back under its (red) 200-day average. It's not enough for a market to rise over a moving average. It has to stay there. If today's selloff continues, it will negate Friday's positive move. Part of the problem for the Dow is that last week's sharp runup pushed short-term indicators into an overbought condition. The RSI moved over 70, while the daily stochastic lines got over 80. That's overbought territory for both oscillators. Chart 2 shows the S&P 500 also falling back under its 200-day line. Breadth is especially negative near mid-day -- with losers on the big board swamping gainers by a four-to-one margin.
Chart 1
Chart 2
BOND YIELDS ALSO STALL AT 200-DAY LINE... Chart 3 shows the yield on the 10-year T-note also backing off from its 200-day line. That's a negative factor for stocks -- since yields rose along with stocks last week. It also means that bond prices are rallying today as stocks are being sold. In other intermarket developments, oil prices have bounced more than a dollar. In addition, the U.S. dollar has fallen 1% versus the Euro -- which is helping boost gold prices. Gold stocks are the only group gaining today. Gold prices are bouncing from chart support.
Chart 3
GOLD BOUNCING FROM CHART SUPPORT NEAR $325... The recent correction in gold has brought it right back to its original breakout point near $325. If the bullish breakout that took place last December was for real (and we believe it is), this is precisely where it should find new support. Gold prices closed at $326 on Friday and are bouncing today. That's giving a boost to gold shares.
Chart 4
