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At least, hopefully temporarily.

In a quick update, I wanted to show the fall-out of the mini-crashes that rocked the world of inter-market analysis on July 1, 2010.  What a way to start the official second half of the year.

(Click for full-size image)

Earlier this morning, I reported on the Negative Divergences and Top Heavy Chart… and by the close, the precious metal collapsed, breaking all short-term support levels I mentioned were likely targets.

Given the daily chart and structure of gold �" namely the lengthy negative divergences �" today’s sell-off was no surprise, but the power of the sell-off was surprising.

Ok �" nothing wrong with that, but when gold falls, one would expect the US Dollar Index to Rally and the Euro/USD (EURUSD) to fall as well �" as the Euro often tracks well with commodities.

Exactly the opposite happened.

The EURUSD rallied very sharply �" crashing upwards �" and the Dollar Index crashed downwards.  Strange.  Unusual.

With all the headlines of global economic slowdown and the fears from that, we would expect oil prices to fall.  They did �" so that was no surprise.  The vicious plunge from the $75 level to the $71 level in 5 hours was surprising.

And the S&P 500?  It didn’t know which way to turn.

It continued its sell-off from yesterday’s break of the important 1,040 level, supported at 1,010 ( I showed the Fibonacci Confluence here), and then rallied into the close.

The S&P was the only market, excluding bonds (which traded opposite the S&P �" rallying in the morning and then falling into the close) to shift directions mid-day.

Let’s take some time to assess the cross-market damage and temporarily broken relationships to see what went wrong, where, and when we’re likely to get back on track.

Luckily, we have a holiday weekend coming up to do so.

Corey Rosenbloom, CMT
Afraid to Trade.com