The market looks like it’s ready for a bounce, so a short-term trade certainly seems to be setting up.

Gold markets initially looked like they were going to break down drastically on Friday, but turned around quite significantly to form a massive hammer. This is a technically bullish signal, especially considering where it ended up being formed. The $1800 level is an area that has been important more than once, so bouncing from there to form a hammer is a very strong sign. If we can break above the top of this hammer, it’s a bullish enough sign that some traders will jump in and try to pick up gold again.

On a breakout to the upside, I anticipate that the $1880 level will be targeted. This is an area that has been resistance more than once, and therefore I think we could see a bit of difficulty in that general vicinity. Nonetheless, the market could very well end up there quite rapidly as gold does tend to make sudden and erratic moves.

Pay attention to the 10-year yield, because if interest rates in the United States start to rise again, that works against the value of gold. It makes the US dollar more attractive, which works against gold being priced in that same currency. Furthermore, traders would much rather store paper than pay for the storage of massive amounts of gold. Anytime there is yield to be had, gold does fairly poor.

The market looks like it’s ready for a bounce, so a short-term trade certainly seems to be setting up. However, if we were to break down below the bottom of the hammer, it’s very likely that the market could lose $100 rather quickly. Gold has been extraordinarily volatile, but in the inflationary environment that we find ourselves in, it’s probably only a matter of time before gold has its day. I don’t know if Friday was a major turnaround, but it certainly looks as if it could be the beginning of something. Regardless, with the type of volatility that we have seen in multiple markets, you need to be cautious with your position size, especially in a market like this that has low volume. Furthermore, you need to keep in mind that Monday is the Independence Day holiday in the United States, and therefore it’s likely that volume could be a bit of an issue. Electronic trading will of course be available from time to time, but it is not a normal session.

Any rally at this point in time will more than likely offer a selling opportunity. 

The S&P 500 initially fell rather hard on Monday, breaking down below the 4100 level. That being said, at the very end of the day there was a suspicious surge much higher. This is widely attributed to the so-called “plunge protection team.” (Whether or not that is a real thing is still open for debate, but I am looking at you, New York Fed.)

By forming a hammer, it does suggest that we may get a little bit of a bounce, but it is difficult to imagine a scenario in which we are suddenly going to turn around and take off to the upside. Most traders are probably focusing on the Federal Reserve and what the statement will say on Wednesday, as although people are expecting a 50-basis point hike, the real question is going to be whether or not the Federal Reserve looks as if it is ready to go even more aggressive when it comes to tightening. At this point, I think that the market is reading a bit of a fever pitch, but obviously, we will have to wait to see what happens at the press conference and press statement after the announcement.

If we break down below the bottom of the candlestick for the session on Monday, then it is likely that we will threaten the 4000 level. Breaking down below the 4000 level will open up the possibility of a massive selloff. At that point, I think that we would get a massive unwind in the long positions. At this juncture, you should pay attention to the fact that the “death cross” has just formed. Ultimately, a lot of longer-term traders will pay close attention to this, perhaps starting to get aggressive again. Nonetheless, the Federal Reserve and the inflation concerns out there will continue to weigh upon the S&P 500, so I do think that any rally at this point in time will more than likely offer a selling opportunity. In fact, it is not until we break above the 4300 level that I would be impressed enough to get long of this market. After the FOMC statement and press conference, we may have a different set out but right now you still have to assume that things are pretty pessimistic.

Now that we have tested the 50 Day EMA two days in a row and I found buyers there, I suspect that a bounce could be coming.

The S&P 500 has saved itself late during the trading session on Thursday, as the fabled “Plunge Protection Team” enter the market. Whether or not it was actually anybody at the Federal Reserve is a completely open question, because quite frankly there were a lot of technical reasons why this could have happened.

The first thing of course is the 50 Day EMA being tested, which generally attracts a certain amount of attention. Now that we have tested it two days in a row and I found buyers there, I suspect that a bounce could be coming. It did not look that way earlier in the session, and quite frankly I thought we could see a bit of selling. Now that we have turned around, it is obvious to me that the market refuses the fall, perhaps due to the fact that people are willing to challenge the Federal Reserve.

Keep in mind that this is about liquidity and nothing else and will have nothing to do with the overall economy. (The idea of the stock market and the economy being related was killed after the Great Financial Crisis.) Currently, there is a huge debate as to whether or not the Federal Reserve will be as aggressive with monetary policy as advertised. It is an interesting argument, and is going to continue to cause headaches for traders.

If they are not, that is good for stocks because they run on liquidity and nothing else. On the other hand, if they have to be tight because of inflation, that will be like a hammer to the stock market. A lot of it is going to come down to whether or not Wall Street gets its fair share of cheap money, in its eyes. Those days could be over, but it will be interesting to see whether or not that plays out.

The market has been forming a bullish flag, and the action during the trading session on Thursday saved that notion. I anticipate that they may try to push this market higher heading into the weekend, but there is going to be a certain amount of influence from Asia and Europe at the open. If they start to sell off again, we may fall to test the 200 Day EMA. I anticipate that by the time it is only North America trading, there will be buyers.