GOLD IS RISING AGAINST ALL CURRENCIES -- SELLING IN FINANCIALS, RETAILERS, REITS, AND SMALL CAPS WEIGHS ON MARKET -- VIX BOUNCES OFF 200-DAY LINE

IT'S NOT JUST THE DOLLAR ... One of the main driving forces behind the recent rally in gold (and other commodities) has been the falling dollar. At the same time, one of the signs of a true bull market in gold is its ability to rise against other currencies besides the dollar. And that has been the case. Chart 1 shows gold hitting a new high quoted in yen. That's not so tough considering that that yen has been relatively weak. Chart 2, however, shows that gold is even rising when quoted in Euros. Chart 2 shows the gold/Euro ratio breaking out to the highest level since the spring of 2006. It's also rising against the Canadian Dollar which has been on a tear of late. Chart 3 shows the gold/CDW ratio rising since June. That makes gold stronger than all three of those major currencies. Chart 4 shows that's been the case for the last seven years. That chart shows bullion quoted in Euros (blue line), yen (gold line), and the Canadian Dollar (red line). The ability of bullion to rise against all major currencies gives a lot more credibility to its major bull trend.

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MARKET LAGGARDS BACK OFF FROM 200-DAY LINES... Last Tuesday I wrote about a number of stock groups that were lagging behind the rest of the market and creating some negative divergences. I showed several of those groups testing major resistance at their 200-day moving averages. -- including financials, retailers, the REITS. Charts 5 through 7 show all three failing that test and helping lead the rest of the market lower today. On Thursday, I showed the Dow Transports unable to clear its 200-day line. It still hasn't done so. Another record high in oil is weighing on the transports with airlines down more than 2%.

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SMALL CAPS FAIL TEST OF OLD HIGH ... On Thursday I also wrote about the inability of small caps to break through their summer high. Since then, small caps have led the market lower. Chart 9 shows the Russell 2000 iShares undercutting last week's low after falling a test of 85. The inability of small caps to join large cap indexes in new highs has caused nervous profit-taking in both. Today's selling suggests that last Thursday's high-volume selloff may have marked at least a short-term top.

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VOLATILITY IS STARTING TO BOUNCE... Another sign that shorter-term traders are starting to get nervous is the uptick in the CBOE Volatility (VIX) Index. Chart 10 shows the VIX hitting a two-week high today after bouncing off its 200-day moving average. The daily MACD lines have turned positive for the first time in two months. That might be enough to cause more profit-taking in stocks.

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