So here we are with the bond market which had a very bad ending to the week as it made a small degree double top inside the gap that started the year. It had been projected to retest that gap one more time and failed miserably. Here’s the challenge; the wave count down from the November high is a perfect Fibonacci leg sequence for a 5 wave drop. That means you still don’t take for granted it will break down below the low but it’s not looking very good. If the SPX is going for 1564, chances are bonds break down again. If the SPX is headed for 1509 we could see an important reversal this week. But a breakdown here, which is a reasonable probability, can get the long bond down to the 134-36 level. Even if it does break down, that doesn’t mean the bull market is over. For the bull to be over, we’d need to see prices break below the 2011 or early 2012 low. Until then we have no real technical damage to the long term.
As far as gold is concerned the 2 legs off the top are close to equality which is why you can build at least somewhat of a case for an important bottom. By the top I don’t mean the absolute top, just the pattern we’ve been running since the October peak. If you want to look at the complete pattern from the real top in 2011, if any of these legs wants to extend lower we could end up a lot lower. But the condition with gold is the recent bounce has been really crummy even with the equality of legs and the 62 days off the high. But the intraday pattern on the precious metals is calling for a bounce attempt right now so we’ll see how kindly bears react to that.
Coming into the week we likely see a continuation of what we’ve seen recently. Look to the various alternative in the SPX as a guide. These should continue to impact the markets. The VIX problem is unresolved but as we know it may not impact the price action for weeks to several months. Just be sure you are not the last man standing at the game of musical chairs.
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