Interesting Week Leading Up To Independence Day

What an interesting week this has been.

Tuesday, the S&P gaps higher to a new 6-day high, promptly reverses, closing lower on the day. Classic short term sell set up? Not in this new age marketplace, as shorts were jammed pre-market Wednesday, with the index gapping higher, taking out the previous day’s high, and setting a new 7-day high. Oops, false breakdown, just shaking Nervous Nelly longs, time to rocket higher especially since the day before the 4th of July holiday has an overwhelmingly positive expectancy. Oops, sorry, another overnight reversal, this time down, the slide accelerating after the jobs report was released, leaving day traders dazed and confused.

Maybe now is the time to wreak havoc with swing traders, as the S&P appears to forming a nice, clean head-and-shoulders top. The neckline is approximately 880, a measured move projecting a 76 point decline, which is very close to 50% retracement of the March to June up-leg. If the S&P penetrates and closes below the neckline, be aware Mr. Market may be setting a trap, trying to catch intermediate traders leaning short after an obvious breakdown level is violated, only to have stocks rip to the upside, again frustrating the majority of players.

As long as prudent stops are used and traders properly size their positions, getting whipsawed and losing a small defined amount is a cost of doing business, a mental annoyance for a disciplined trader. Once the true trend commences, those traders will easily recover their losses, profiting by jumping aboard the newly formed main trend.

Reports of higher unemployment weighed heavily on commodities, hope being squashed by reality Thursday, overly optimistic recovery assumptions suddenly thrown into question. Gold stocks (GDX -3.20%) actually hung in there pretty well, closing the session essentially where they opened even as the broad market shed another -1% into the close (S&P -2.91% on the day). As long as GLD (closed Thursday at 91.22) can hold the 90 level, we are confident the precious metal can make a run for 1000, making the gold miners potentially one of the most attractive long plays over the next few weeks.

To our American readers and clients, may you celebrate your freedom and independence this weekend, knowing that in spite of all criticisms you still enjoy living in the most desirable country on earth.

Yes, it’s time to think about what you have in life. It may not be perfect, but it is a measure of freedom and independence enjoyed by no other country, which is a tribute to those who are constantly endeavoring to make it better.

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