Taking a look at the weekly chart, you'll notice that we are bumping up against the 200 day Moving Average which proved to be resistance back in April, and we quickly went lower.
The S&P daily chart is showing several dogi's in a row, indicating that trading ranges have been tight and the market has no real direction, even though it has been trending up.
Finally, take a look at the chart of the dollar. I've indicated the trendline cap at 89 and the ascending trendline floor right around 76.3. Despite QE2, the dollar could be poised to bounce off this trendline.
Should the dollar find support here on this trendline, it would likely mean lower equity prices again. While it would be a surprising conclusion that the dollar could rally in the face of more Quantitative Easing, remember that the Yen has rallied for 10 years against the dollar in the face of massive QE in Japan.
A stronger dollar right now indicative not of true dollar strength (investment fund flows) but of deflation (demand for money increases).
While this is S&P 500 negative, I do not believe that over the intermediate term it is Gold negative. Gold is only correlated to the dollar slightly less than 0.5, meaning that it moves with the dollar only 50% of the time. This year's earlier move in Gold and the dollar simultaneously during the Euro-blowup in May demonstrated that.
As the demand for real money continues to accelerate, Gold will be less and less affected by the $USD. Gold and the dollar can go up together, and likely will, until such a time as the dollar "breaks".
One could make a strong case here for short ES ($SPX), long GC ($GOLD); personally though I am not repositioning myself until after the Fed meeting and elections.
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