The Brains Trust, page-11179

I have mentioned for the past couple of days that I was uneasy on the weekend when I updated all my charts and I couldn’t quite work out why. Now I can see clearly what it was. Yes, it was currencies but not quite the way I thought the market might have been suggesting. Instead of the US dollar weakening and starting a race to the bottom, it was the US dollar going higher and leaving everything else behind.

Rates in the US strengthened dramatically overnight with the US Ten Year Bond yield breaking through its recent highs. This spooked Wall Street as well. I was looking for a correction early this week but as I said on Monday, the trick is for it not to be too deep. Not really happy with the way some indices have gapped down. On the plus side, the Russell 2000 which was the most bullish looking of all the indices, only came off marginally so for now, I might focus my attention particularly on this index to analyse whether the trend has turned down again or not.

Gold was one of the worst casualties of the overnight mayhem breaking sharply below its recent lows. Could come back $1275 but more importantly, we need to see some sort of basing action to be confident of a turnaround. Gold has traded in this area for many months over the past couple of years, so there is good support but difficult to be specific. However, there is a sunny side to this question – the weaker Australian Dollar has certainly lessened the pain for our gold stocks. The Aussie gold price has built up a huge base pattern over the past few years which will certainly help but here again, I do need to see evidence of a base.

Australia will obviously feel the pain as well today. I have been saying for days that our market was overbought and then to really signal a reversal, I mentioned yesterday afternoon that BHP had formed a tiny little head and shoulders top pattern and broke down. That was the final straw for me. The XJO had traded either side of a fork from the February low for nine sessions but broke below it early yesterday and then went on in late trading to break below its initial support. Hard to pinpoint targets at the moment because the rise was so steep.

Obviously not good news for the spec end of the market. Not been a lot of new money in this area for some time. Until we can work out just how serious the break in New York is, the bottom end of the market is likely to remain overlooked.