Here’s what to look for in the action today…

General Trends

We’ve been looking for the stock market to make a significant, intermediate-term top sometime soon. Up until yesterday, though, the market hasn’t done anything to suggest a top was in place.

High-yield bonds and semiconductor stocks – two market-leading sectors – have been holding up well. Most technical indicators remained in “neutral” territory, with plenty of room to push higher before getting overbought. And the S&P 500 continued to trade above the support of its 9-day exponential moving average (EMA) line.

These are all bullish conditions.

Just about the only major warning sign was the pricing structure of Volatility Index (VIX) options. VIX call options expiring over the next few weeks are several times more expensive than the equivalent VIX put options.

This condition almost always leads to a spike higher in the VIX. And a higher VIX usually comes with a lower stock market.

This warning sign, along with the calendar rolling over to a seasonally weak period for stocks, was enough to turn us cautious.

If the action in the overnight futures market is any indication, turning cautious looks like a pretty smart strategy this morning.

For those just joining us, the Market Minute is where I watch the broad markets as they set up for the trading day and give some ideas for how to play them.

Let’s start with stocks…

Stocks

The S&P tried to rally out of the bull flag pattern I showed you yesterday. The index did make a new intraday high just below 2406. And then it just simply ran out of steam. The S&P closed slightly lower yesterday. But, it held above its 9-day EMA.

Here’s an updated look at the daily chart…

You can see the negative divergence that has been building for several months on momentum indicators like the MACD (moving average convergence divergence) and the Relative Strength Index (RSI). As the stock market has been rallying to new highs, these indicators have been stuck at lower levels. This “negative divergence” is a caution sign. But, as long as the price action remains bullish – meaning the index holds above its 9-day EMA – then the intermediate-term trend remains higher.

It looks like that might change today.

With about four hours to go before the market opens for trading, S&P 500 futures are down 13 points. That’s enough to push the index below the support of its 9-day EMA. If the S&P 500 closes today in that condition, then the short-term trend shifts to bearish.

And, since we’re now in that part of the calendar that is unfavorable to stocks, the intermediate-term trend might be ready to shift bearish as well.

Gold and Gold Stocks

If the broad stock market starts to decline, then gold and gold stocks should hold up as defensive trades. I’d prefer to see the gold sector pull back a bit first and allow gold stocks to form “higher lows” on their charts. That would create a stronger bottoming pattern from which the gold sector could mount a significant rally.

But the market doesn’t really care all that much about what I’d prefer. The gold sector is going to open higher today.

I’d like to add some additional exposure to gold stocks. But I’m not a big fan of chasing stocks when they gap higher on the opening. So I’ll hold off for now. It’s more prudent to wait and see if the intraday charts can produce a better, lower-risk buying setup.

I’ll update Delta Report readers on these trends throughout the day on Jeff Clark Direct.

Best regards and good trading,

Jeff Clark

P.S. I love to hear your feedback. Send any questions, concerns, or great trading stories to me right here.