GOLD AND S&P.

GOLD appeared to be breaking down early last week, the metal reversed offsetting the stab down and recaptured its 50 day moving average. Last week left an outside up week in gold and any extension this week looks as if it will trigger a move out of a bullish Cup & Handle pattern.

This pattern exists within the pattern of a short-term inverse head and shoulders pattern as well as a larger inverse head and shoulders pattern. Last week’s turnaround in gold sets up a potential move over resistance in the way of a long declining 3 point trendline. A breakout over triple tops will trigger a Rule of 4 Breakout which has a strong likelihood of follow through. As many of you know panicky moves often times culminate at/near the 49th period of a move.

The crashes of 1929 and 1987 being good examples as the crash in both instances occurred 49 to 55 days from the high day. Looking at the weekly chart of gold, I see how the two most important peaks on the chart occurred 49 weeks apart. October will mark 49 weeks from the last important swing low. Will it be a spike high if gold breaks out?

While gold is poised to break out, the stock market is coming off the July Jolt. Despite the seeming bullishness of the outside up month of the S&P, the market has entered into the time period where a reversal could occur.

I don’t know what the catalyst for a reversal would be anymore than I knew what the catalyst would be at the March low. I still don’t think anyone can point to anything other than hope in a heavily oversold market that turned stocks around in the spring. The reason why any downside reversal must be respected is that it could be larger than most participants expect: bull and bear trends often play out in three’s---I don’t see 3 drives to a low on the monthly chart of the S&P which raises risk on any turndown in the Monthly Swing Chart in August.

Because of many cycles and patterns including 1979, 1929, 1990, and 1999 (the DJIA topped in August and double topped in January the next year) which I will flesh out further later, I believe that the July Jolt will lead to August and a September Surprise... to the downside