Markets should continue to bounce

Last Friday after the close we correctly called an oversold situation and the markets have had 3 strong days on rally mode since Tuesday. We should see at least another 300 point follow through into next week. Not saying that tomorrow will be an up day but the negative sentiment that has been in the market for the last 2 months seems to be abating and I would expect a continued rally on light volume over the next week for sure as we enter into the summer months.

One positive sentiment factor for a continued rally is that the Euro has technically moved into rally mode of its own making a strong move and we should see the Euro test resistance at 1.300 and the breakdown point around 1.32 and change. With the drastic cuts to budgets in Euro zone nations the reaction has been positive, but we will still wait and see if the Euro zone economies can recover with these cuts.

Since it was the breakdown in the Euro and widespread fear that caused this last sell-off we could see the markets and Euro recover. At best we will be range bound for the summer when we enter into September and a new round of economic data. The TED spread is rising and we wait to see if the spread comes down which will signal stability in Europe. If it continues to go u,p that could be a warning sign although currently it is still within a normal range but on the high side.

The USD seems to be recovering as well from its recent drop off so the YEN is starting to become weaker against all currencies. If you are long the EUR, being long against the YEN may offer more upside than being long against the USD.

Gold should continue to sell-off over the next few weeks and I would expect at least $1170 and lower. If it goes under $1130 I would shy away from the trade. Gold stocks are very weak at the moment. Dogs include YRI and K... Kinross used to show so much promise and now the market treats them very poorly. Huge gap down the other day which is never a good sign. G and ABX are holding up the best but I would expect all gold stocks to continue to drag lower. There is definitely some negative divergence with the spot price and gold stocks. It seems that the strategy for the gold player would be to be long the yellow metal physically and trade the gold stocks cyclically because so far they have not broken out into a super bull market in gold stocks which we are all waiting for. I would expect this market to turn around at the end of July where one could time a good trade to the upside as Gold will soon be entering into a time of cyclical bull period into August and September.

One negative sentiment is that all risk adverse assets seem to be in sell mode and are well off highs. This is usually the first market that the money flees if we are indeed entering into another bear market this fall and none of the risk adverse assets I follow seem to be showing much bullish sentiment at all. The last buying spikes of pennies in April and into May could have been a last gasp of a bullish market the little guys.



Happy Trading :)