While the broad market certainly fooled us with yesterday's sharp rally, which was not expected, it still looks like it is topping out.
On the face of it yesterday's sizeable advance was impressive, as the S&P500 index broke clear above its falling 200-day moving average, and while the mainstream financial media may be popping the champagne corks, there is evidence that we are now seeing the final peak as an intermediate top forms.
On the 6-month chart for the S&P500 index we can see how the market lunged above its 200-day moving average yesterday. Volume, however, was comparatively weak, and the horizontal support line evident at about the 880 level suggests that a Head-and-Shoulders top may be forming above it, with the Left Shoulder having developed early last month, and the index rising up to form the final high right now. If this interpretation is correct, then we are at the optimum point to reverse position in the broad market, assuming that is that you have any long positions to start with. It would be a classic cruel irony if the market topped out at the moment General Motors filed for bankruptcy, the sort of irony that is not untypical of the harsh cynicism of markets.
There are also signs that MOST EVERYTHING is topping out, at least on a short to medium-term basis. Gold is overbought and is very close to the point at which it has gone into reverse on 3 previous occasions.
Silver is into critically overbought territory having risen to hit the underside of a zone of heavy resistance above $16. Consolidation and more likely reaction is to be expected soon.
Precious Metals stocks have risen strongly into the next zone of heavy overhanging supply. An array of tactics to employ at this juncture was set out in the Marketwatch HUI index analysis at the weekend, and you should select from the options presented those tactics that best suit your personal situation and disposition.
Crude oil which has had a spectacular run, as predicted in the March Oil Market update, has risen to the top of its intermediate uptrend channel, and it looks like time to take profits. Ditto oil stocks which have risen back up to the top of a large trading range.
Oil stocks have risen to our target zone also given in the March Oil Market update at the top of their large trading range which can be seen on the 1-year OIX Oil Index chart below. They have in addition risen to meet the top of the uptrend channel shown. It is therefore considered prudent for traders to scale back holdings of larger oil stocks at this juncture and await developments.
All of this fits with the picture for the dollar - while it looks like it could drop off a cliff, it is already close to being critically oversold and entering an important zone of support, so if the PPT still have the power to intervene to turn it around at least temporarily, in cahoots with various central banks, this is the point to attempt to do so - and they have plenty of reason to do so with the Treasury market in tatters.