Gold Bottoming and the Dow Topping?

[JDH]

Interesting that gold held at the $1,325 support level and bounced higher on Wednesday, while the Dow made it over 12,000 for the first time since 2008 before closing under that level.  Those levels may be completely meaningless, or they could mark a near term turn.  We'll have a better indication of the significance of this, if any, over the next week or so.

[pinetree]

I've developed a bearish bias on the market over the past week or so.  One reason is the put/call ratio which I posted about in the TA thread last week.  I threw together another chart here with some other things I've been looking at...



Going clockwise...

In the upper left I show copper futures, followed by the S&P.  I think I posted last summer about how copper had been a good leading indicator for market turns since the March low, and it was again in July last year.  Why?  I don't know.  But notice as the market has moved higher in January, copper has stalled out and put in a failed new high.  So that's another warning.

To the right of that is a monthly chart of S&P futures.  I drew in a "supply zone" dating back to the August 2008 high which "should" provide resistance.

Now in the lower right we have the $VIX, which usually moves inverse to the market.  It has put in a double bottom at the 15.40 level, which is also the level that it bottomed in April 2010 when the market topped out.

Next are hourly views of the Dow and Nasdaq with the fib projections that Sidewinder clued me in on.  The main thing I'm looking at here are the red lines - those are major levels which have the greatest probability of being important.  The NDX tried to break out last week but quickly fell back below the line.  I have been expecting a retest of that level as well as the Dow to make a run at its redline, both of which occurred today.

And of course, we also have "round number resistance" with the Dow at 12000 and S&P at 1300.   The only fly in the ointment of my bear thesis is the US dollar which still looks weak.

So yeah... I'm expecting a correction, at least down to the 50sma on the S&P.  But... calling tops is a tough business and who's to say if it will happen from here or from a bit higher.  I have a DXD hedge in my regular brokerage account and added to it at the close Wednesday, but am prepared to stop out of it if need be.

As for gold, I am expecting it to correct some more, though I don't trade it so take that with a grain of salt.  If you want to know what's going to happen there I suggest you look here:
 http://sidewindersview.blogspot.com/2011/01/heres-my-take-on-gold-and-silver-for.html  

[pinetree]

I took off the hedges in my regular account after today's breakout.  Had no choice.  When I put them on I said to myself if we close above SPX 1300/Dow 12000 then I'm back to bull.  I'm not going to risk letting a very small loss turn into something larger should this rally continue.  I can always put the hedges back on if need be. 

I notice Copper futures, which had been diverging all month, have now broken out to new highs.  And the US Dollar broke down again.  I had noticed a lot of bearish chatter over the last week so I'm sure there are lots of frustrated traders out there after today...

[sidewinder]

I don't think this rally is over but it is certainly due some sort of correction.  That question is only when?  And of course how deep.