- Dugald Malcolm

Montreal, Canada

My attention has been anxiously focused on the major US indexes for the last few weeks. The last time I wrote about the chart of the S&P 500, it was approaching a major downward trend line that had been in place since late 2007. Since that blog on November 11th, the price has continued to approach the trend line, but has yet to break it. This has been the case with the other major indices, as they have been indecisively moving sideways.

The DOW, NASDAQ as well as the S&P 500 are all in the throes of a battle between the bulls and the bears. What is curious about this particular battle is that, since mid-November, the battle is tied. The result is a sideways trading range which has been created on the price charts of each of the indices. As demonstrated on the chart of the S&P 500 below, the pattern is aptly referred to as a rectangle. Prices bounce up and down between the upper and lower horizontal boundaries with neither buyer nor seller demonstrating any real strength over the other.

Eventually, however, one side will win out and one of those horizontal lines will be assertively broken. If history is any indicator, rectangles typically have come in the form of a consolidation formation rather than a reversal pattern, which normally appear at bottoms not tops. However, since the upper boundary also coincides with the aforementioned major downward trend line, the bears still might have a fighting chance in this battle and shouldn't be counted out just yet.

Speaking of not being counted out, gold has come under fire recently because of its recent turn around. Some investors have become quite worried because of the pullback in gold prices, saying that the price has moved too high too fast and other going so far as to claim that the gold bubble has burst.

I think some perspective should be employed here with the help of gold's weekly chart. As one can see, and these worried investors have focused on, the price of gold breached a short and rather steep trend line (shown in green) that had been in place since late October. One must look, however, at the longer term trend (shown in blue) which has shown no signs of even closely being violated. While gold does have room for further short-term price decline, which should be used as buying opportunities, the long term technical and fundamental indicators remain positively bullish.