Sluggish All Around

I suppose that a quieter trading day makes sense after the volatility that was seen on Friday.  But for whatever reason, I got the sense that many investors extended their weekend through today, hence the paltry 3.5 billion share volume on the S&P's.  This lack of conviction once again equated to a higher close for the S&P 500 (close: 1,71.25, up 6.37), which is becoming a bit of a pattern of late and is definitely not a positive sign for the bulls.  Part of this malaise is no doubt due to the summer period, but I would have thought that Friday's sell off would have sparked at least some additional participation today.  I guess everyone's been comforted by the channel-driven trade in equities of late and, therefore, not overly concerned about price action that falls within this range.

As you might expect, the equity rally today was met with fixed income selling, which saw Treasury yields back track slightly.  The 10-year yield now stands at 2.96%, while the 30-year held on to its sub 4.00% yield level, finishing at 3.98%.  From a technical stand point, this rise in yield was fairly insignificant as it constituted an 'inside day.'  Simply put, an 'inside day' is one where prices (in this case yields) remain within the previous trading day's range.  This is generally looked upon as an indication of little directional conviction, which often means that the market is awaiting additional data.  With corporate earnings reports, housing starts, initial jobless claims, and leading economic indicators all set for release later this week, the Treasury market won't have long to wait.

Gold, interestingly enough, was the one market that I noted some descent activity in today.  Down just over $10 or 0.85% per ounce, gold continued its slow drift lower and managed to close at a multi-week low.  As I've mentioned in previous posts, this market has been puzzling me for several weeks now.  Technical indicators clearly show that the commodity's long term positive trend is intact (some momentum indicators like the MACD are weakening, but higher highs and higher lows continue to be seen regularly), but the price action has, for the most part, appeared bearish during the last few months.  Given the amount of weakness that was seen in the Euro just a month ago, it was surprising that gold did not sell off any harder than it did.  Now with the Euro strengthening against the dollar the past several weeks, the selling has continued.  So much for the currency hedge argument.

For what it's worth, I think gold is at a critical junction in its long bull market that is more likely to take it lower rather than higher.  There is certainly a solid case to be made for it going higher, but it just seems to me like this market is tired, at least for now.  Having moved past its nominal all time high price (around $1,000 per ounce) in the fall of 2009, gold surged an additional $200 to $1,261.90 in relative short order.  Since then, it's been stuck in a range-bound trade.  Perhaps it's waiting for another crisis-type situation to materialize before it goes higher?  It's break to new highs wasn't in the midst of any serious economic calamity, so I find it hard to believe this is the case.  Maybe the concerns about deflation are causing it be shunned along with other commodities?  Perhaps, but gold has always been a bit disconnected from the rest of its commodity peers, so I find this explanation insufficient as well.  More than anything, I look at the amount of advertising that surrounds gold at present and can't help but think that this is a contrary signal.  When the average guy on the street starts looking to hock his gold chains, that's a sign, to me, that the market's rally is done.  Coupled with the relative stagnation in price in the midst of this new appreciation for gold by consumers and I'm further pushed to the bear's camp.  In fairness, I could be completely wrong on this one as I have very little experience with gold.  Gold bugs in particular like to point to things like the inflation-adjusted all-time price of gold (around $2,400 per ounce) as reasons why the rally could and should continue.  They may be right; I just don't agree.  As with any market, there will be opportunities for trading profits, but I'd be wary of an outright buy and hold strategy with gold.

Sorry for the relatively short post today, but the markets simply didn't provide much in the way of content.  I'm continuing to monitor the major earnings releases for additional insight on the economy, but the data are conflicting at best so far.  It appears that there are pockets of strength (technology, those with high exposure to China), but this is not a wide spread phenomenon at this point.  If this continues, and I think it will, equities will find it hard-pressed to rally.  I'm still short and feeling great in that position for now.  Tomorrow is always full of plenty of unknowns, but that's what makes the game fun.  Until tomorrow.....