Yesterday, good old-fashioned profit taking, along with resurfacing worries that European banks may be undercapitalized after all, was enough to end last week’s winning streak.
As I posted, the major indexes had rallied back to the upper end of their trading range, which means that very encouraging economic news is needed to drive the market through this glass ceiling. In the absence of such news, the path of least resistance usually is to the downside.
Gold made new highs (for October delivery), the dollar rallied while oil fell, and interest rates were lower, supporting the current bond bull market.
The European debt woes were pushed back to the front burner as yields on Greek, Portuguese and Irish bonds were sharply higher causing fears of possible defaults.
This was probably the driving force behind the gold rally. Along with potential debt defaults, property bubbles in China, Canada and Australia may eventually prevent the major indexes from not only breaking out to the upside, but staying at higher levels.
The world markets are fragile and nervous, so any sudden unforeseen event could wreak havoc with trend direction. Keep your portfolios conservative and monitor your sell stops closely.