I am neither that surprised nor concerned that the indices sold off a bit yesterday. The DAX and FTSE had made very robust gains in the preceding days, so a bit of backing and filling now is only right and proper. Markets cannot rise in a straight line, and we also need pullbacks along the way in order to allow us to join or rejoin the trend.
Breadth is improving on the FTSE, meaning that more stocks are participating in the rally. The index’s McClellan Summation index has turned up from below the zero-line and in fairly decisive fashion. Such activity has marked a number of significant lows over the last three years and more. There is still everything to play for here if you are bullish like me.
Click here for analysis of some leading European markets.
While I have a generally bullish short-term outlook for gold, it is always worth considering the opposite case. One possible interpretation of the rally since early November is that the yellow metal is forming a bearish “rising wedge” pattern on the daily chart. If so, we should expect another violent plunge, revisiting the recent lows at $1671 and perhaps below. I do not subscribe to this, however. I expect further dollar weakness before long, and further gains in gold.
Click here for analysis of some leading commodities and EURUSD.
WALL STREET OUTLOOK
The Dow gave a repeat sell-signal on its swing-chart yesterday, while the S&P and Nasdaq may well follow suit today. I did not heed the Dow’s signal and I would be unlikely to do any differently any time soon. I still think the rally of the last few days is most likely the start of the larger Q4 rally that I have been calling for. The move has impulsive or “main trend” characteristics, so I am in favour of keeping the faith. Ultimately, I see the fiscal cliff being avoided, although admit there is a chance of further wobbles as the two parties square up to one another. The bull market is not over, and new highs beckon in time.
Click here for analysis of the US indices.
MORE FROM DOMINIC PICARDA...
Dominic Picarda is a Chartered Market Technician and has co-ordinated the IC's trading coverage since 2006. He is a regular speaker at trading and investment events and also holds the Chartered Financial Analyst qualification.
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