Long road for market direction

Last Friday we had an unusual day in which gold, the US dollar and the markets all closed positive. Gold spot price closed 1.22% higher at 1,814.60, the Dollar Index closed at 76.60 for a 0.47% gain, and the Dow Jones had a final level of 11,509.09 resulting in a 0.66% advance.

Normally these three do not trade in the same direction, having more of an inverse relation between them, which is why we are thinking right now of disarray in the markets with the resulting drop in the next days. However one day does not make a tendency so we will have to wait this week for clarification.

Unfortunately we can’t wish the markets on a direction; the most we can do is exam the possible scenarios and then be ready for action.


The Dow is trading inside a perfect parallel lines channel, it is very difficult and most of the time unprofitable to trade inside a price channel, it is better to wait for the breaking of any one of the lines that will signal the future trend.

We have several possible outcomes for the market in the following weeks:

a) The market keeps going up, breaks above the upper channel line and signals definitively a new uptrend for the markets. That will be the moment for covering all the shorts and start looking for the best groups to go long.
b) The Dow keeps going up but stops right before breaking the upper trend line, around 11,800, and then starts down. If that is the case, you can start your short positions and be in the look out for a violation of the lower trend line. The target will be Dow Jones around 10,700.
c) The Dow Jones stop its five days run and start going down next week, then a triangle like formation will develop before the breaking of the lower trend line. You can start building your short house around the time of the formation of the triangle. The target is Dow Jones around 10,460.