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Stocks drift marginally lower, but clouds building

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Yesterday's late session sell-off in stocks brought us to heightened alert and searching for any type of clue to give us hint of what the MARKET is thinking.

As stocks drift marginally lower today, there may be some clouds building on the horizon for the broader equity markets. In recent sessions, I've been rather bullish in the gold sector as it looked like there may be some type of move coming. Yesterday we got the move that "gold bugs" were looking for and today's action isn't that much different. I've taken some time to create a handmade point and figure chart with data from the bar chart. Today's move above the

February Gold Futures Chart - $1 box

The supply/demand picture as depicted by the point and figure chart for gold is now in a bullish trend. The current bullish vertical count hints at a bullish price objective of $300. Subscribers should note that this contract spiked from $275-$299 immediately following the terrorist attacks on September 11th. With very little economic data showing inflation, and bond YIELDS headed lower, my current scenario is that the MARKET is worried about some type of currency or debt issue. Not necessarily U.S. specific, but perhaps having a negative impact on U.S. equity markets.

Today we're seeing a pretty meaningful round of buying in the Treasury markets as cash flows into the Treasuries. Earlier today in the 11:00 AM EST Update, I showed a chart of the 5-year YIELD dipping below a recent topping consolidation. Within the past hour I did get a downside alert on the 10-year YIELD as it fell below the 4.98% level.

Again... this isn't a "the sky is falling" call, but current action should be taken as "clouds on the horizon" if you're a broader market equity bull. This morning I suggested a short strategy in the SPDRS and they're just about where they were at the open and near unchanged levels. In today's market monitor I've been suggesting that bullish trader raise stops and lock in some profits on bullish trades that have made some nice moves in recent weeks.

Jeff Bailey
Senior Market Technician
Option Investor

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