The World Is Not Ending...
The title statement has nothing to do with an expected recovery rally, which has been trying my patience as every time I mention it the Dow drops another oh... 500 or so points. The title statement just means that even if the worst fears of investors are realized (and fear is front burner now, think about it), the system is merely trying to fix itself.
Now, I have been watching a bit more Kudlow, Cramer and Cavuto than usual (which is usually none), and on balance, I think the tone out there is changing as expected from 'austerity now!' to 'somebody needs to do something!', which is code for Keynesian solutions to come, which is code for QE panic by whatever name they call it this time. Which is dependent on strong T bonds (check).
In other words, the Keynesians would not solve anything, but simply kick the problem inside this can down the road some more. Gold's bull is not done, though the CME boyz and a healthy dose of broad market relief would likely cool down ole' yeller for a while. Depending on how unhealthy the knee jerked 'investor' base is, a reaction could feel pretty severe if the stock market gets a strong relief bid.
The fear has been so palpable and is so striking when juxtaposed against the still healthy general state of business that I think a serious rally can ignite. Europe has euro strength over the last year to use in compromising their currency in the name of plugging the dikes. Here in the US, we have vast herds hiding in T bonds (I am going to consider shorting the long bond).
In fact, with the depths that markets have dropped to I am allowing more lasting bullish thoughts (than an anticipated relief rally to the failed neck lines) to at least enter the discussion. Though, for now I think it is best to just expect a test of said necklines.
For the Dow chart, that would mean around 12,000. This monthly chart does not show the H&S top, but it does show a beautiful decline to a visible support area that just happens to be at a 38% Fib retrace of the entire rally in hope and inflation out of 2009. The neckline on daily charts comes in at around 12k or just above.
If the market finds support here at #4, there could be a massive unwinding of the fear trade. Unfortunately gold, the simple safe harbor that was never meant to be a play or an instrument of fear, would probably get roughed up as fear unwinds. By the way, I am not an EW charty, so I have no clue as to whether there are other qualifications in play that need to validate this 5 wave up scenario. It's probably screwed up, but I know a bull setup when I see one.
Thinking outside the box, it is possible (though not yet probable) that this may prove to have been an epic buying opportunity.