The big story this morning is the meltdown taking place in the commodities complex. Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.
Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces. In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.
We’ll discuss oil and other commodities later, but first let’s catch up with equities. Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs. As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.
The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.
This morning, we came very close — reaching 1576.87 so far.
We discussed last week about core versus interim positions. I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case. A plunge below 1553 does very serious damage.
So, I’m comfortable in closing out my short position from 1597. That doesn’t mean I believe the market will go up from here. The jury is out. But, by placing tight stops below my long position, I can manage the risk of being wrong.
SPX doesn’t have to reverse strongly for a hold here to be effective. The bottom of the big purple channel (from 1343) isn’t far below at 1564. But, it’s rising quickly. It’ll be up to1576 by Apr 22. So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.
UPDATE: 11:40 AM
Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359. It should reverse here. But, again, a failure to hold could easily send prices down to 1309.
UPDATE: 11:55 AM
UPDATE: 2:03 PM
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