Both the S&P and the Dow are extremely overbought. That doesn’t mean it will stop any time soon, though. Gold ran higher and higher for years until September 2011, and then it retraced from nearly 2,000 down to its current 1,298. The run up in Gold had Goldbugs everywhere buying at higher and higher prices until eventually they were losers. And, of course, it is human nature to buy at the top, because then “it’s a sure thing.” Now, Gold is at its 61.8% Fibonacci retracement and could easily turn back around and start back up. That’s what I would expect: Gold again at about 1,600.
People in the general populous would not recognize that this simple Fibonacci level could lead the S&P and the Dow to take their own retracements back down. But, Gold is the inflation harbinger that people buy when the markets look scary. But, which is the chicken and which the egg? To my mind it’s neither, it’s the math.
The Dow is currently just inches away from its 161.8% extension from the retracement that began in January 2014. When it gets there, the price level is 17,287 and it will probably be reached within a few days to weeks. From there I expect a small correction, probably back down to 16,844 before more running to the upside. The Dow has stayed solidly above the S_DMA for months and shows no sign of falling below the S_DMA. If that happens, expect a correction of about 200 points.