Precarious Spot for the Majors

December 5, 2012
By

Gold and silver are breaking down again, and treasuries are showing signs of life.

Precious metals gapped lower on Tuesday, showing a continuation of the weakness first displayed last week.

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Long bonds, meanwhile, managed to reverse higher, increasing the odds of an upside breakout from a bullish weekly consolidation pattern.

The major indices look vulnerable here, especially from a weekly perspective. The Dow, for example, is showing a bearish wedge pattern in the context of a broadly intact downtrend.

This also fits the pattern in multiple sectors and industries, where near term momentum has either gradually stalled or run into resistance.

Another example of price action at resistance is the euro (EURUSD), which is now challenging the $1.31 level for the third time since September. Third time the charm? Perhaps not.

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Fiscal cliff negotiations remain a black box. Bulls hold out hope that a positive resolution could send equities surging higher, along with favorable seasonal patterns (stocks traditionally do well in December).

But as of now, negatives appear to outweigh positives. Overextended and prone to mean reversion is a dangerous combo.

We now have a handful of shorts on, including gold stocks (GDX), and a newly established long treasuries position. We’ll be steadily adding more equity shorts to the roster if the market sees downside followthrough.

For a detailed look at all our positions, including new setup parameters and position sizing in real time, check out the Mercenary Live Feed.

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