The loss of leadership in the banking and financial sectors (BKX) is now a major warning signal that is required to move the SPX HIGHER.
The divergence, which is currently being seen between the Dow Industrials and Dow Transportation indexes will be coming into play in the upcoming weeks.
The U.S. dollar has declined to a 52-week low. When stocks have been at a high and the dollar at a low, historically, the SPX showed a positive return within six months to one year, almost without exception. I see support in the 92.50 area.
I would expect to see a very quick “oversold” bounce in SPDR Gold Shares (NYSE:GLD), then a correction to the 105 to 107 areas as the final “washout bottom” is put into place.
My approach to the markets is to be flexible enough to handle the possibilities of much stronger and weaker sustained trends than what we have seen in our investment lifetimes.
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Conclusion
In short, active traders should be defensive over the next few days as we could have one more bout of selling in stocks and a spike in the Vix. I feel the best plays right now will be short metals, short oil, long dollar.