Winding Down May

News is a funny beast. We're never sure if events are guiding the news or the news is guiding events. Early in the month, the world was fretting about Ukraine and Russia.

Now attention has shifted toward the Far East and the South China Sea. Japan seems to be growing a bit of a backbone and that has China rattled. Because, after all is said and done, China is a second-rate military power and they scarcely want the fact to be verified.

More directly related to gold - and to other financial markets - news tends to lend momentum unless it is erupted by a truly important development.

So, right now, gold has seen a drop and news tries to persuade us that the real news is that gold will continue to drop.

At the same time, news is cheerleading the rise in equities, although the voices contending there will be a steep and sharp correction in stocks are growing louder. Fundamentally speaking, what should we believe?

Naturally, because of the nature of our analysis, we can't disregard technicals. But we can see that the U.S. economy, which is paramount for world success, is still in the midst of a spotty recovery. The recovery is "steady with some setbacks."

One of the issues confronting the American (and world) economy is the overpriced stock market. The higher prices go, the fewer buyers there are in a given market or for a given company. Eventually the situation ends in one of two ways.

We either see a crash - 1929, 1987, for instance; or we see a steep, sometimes scary correction. The latter is healthy generally as inefficiencies are wrung out of the markets and the companies that comprise the listings, but the worst effects are a pretty bad bump on the noggin and not a death in the family.

We feel as if the correction is coming, possibly by summer. We saw the first stutter-stepping this week and last, but there is still hot money with a lot of faith out there.

Gold appears to be headed for trouble, but don't count out its ability to become a solid vehicle for profits. Also do not expect - for the moment - the spectacular bull run that brought us to $1900.

Today's selling was mostly technical in nature, but also represented sales connected to squaring of books.

May is over. Summer is a-coming in. 

As always, wishing you good trading,