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With December gold options expiring Monday, the market will likely remain in check. But it is still important to watch the U.S. dollar for cues.
December gold futures traded to a low of $1,225.70 in the Sunday overnight session, the metal's lowest level since July 8. Already in a bear market, gold is being led lower by a stronger dollar and by a decrease in global risk premium due to a deal the Iran nuclear deal.
(Read more: Bargain hunters get ready to buy gold)
The expiration of the December contract is traditionally the biggest of the year. After a quiet day on Friday in which gold remained in a $10 range below resistance at $1,251 and above $1,240, the stronger dollar sparked selling ahead of expiration.
I'm betting that the market will close higher on New Year's, and here's why.
First of all, for all the fretting about how stocks may have become over-extended, the market's fantastic uptrend is still intact. This rally has been a three-year story, and the story doesn't seem to be over just yet.
(Read more: Good news: Bubble concern is at 5-year high)
In addition, there's a strong seasonal wind at traders' sails in December. Over the past 31 years, if you bought the March e-mini S&P contract on Dec. 1 and sold it on Jan. 17, you would have had 26 winners and five losers, for a conversion rate of 84 percent.
The 10-year Treasury yield hit 2.84 percent on Thursday, the highest level in two months. And MacNeil Curry, the head of global technical analysis at Bank of America Merrill Lynch, warns that if yields continue to rise, it will be a very rocky ride for markets.
"If we take out 3 percent, we'll probably get a move up to about the 3.17, 3.30 area," Curry said. "And if we do it with some momentum, then it's going to cause quite a bit of panic."
If yields rise even higher, then more than panic will result.
"Where things would be truly unhinged, you'd need to see a break of, say, 3.6, 4 percent," Curry said on Thursday's "Futures Now." "If that were to transpire, you want to talk about volatility? It's going to be a different ballgame."
People are more interested in the concept of a "stock bubble" than they've been at any time since the housing bubble collapsed. But ironically, that very concern could be what prevents another bubble from forming anytime soon.
According to Google Trends, worldwide search interest in the term "stock bubble" is higher in November 2013 than in any month since October 2008. The rise in interest is even more pronounced in the United States, where in data going back to 2004, the volume of searches for the term is the highest it's ever been (with the exception of the bubble-period around November 2007.)
Paradoxically, many market participants say this should actually calm those who fret that equities are currently in a bubble.
"That means, conclusively, that there is no stock bubble," Jim Iuorio of TJM Institutional Services told CNBC.com. "It means that people aren't caught up in the hysteria of being deluded that there is no bubble, which is the only way that a bubble can exist."
Mark Dow, a former hedge fund manager who writes at the Behavioral Macro Blog, diagnoses investors with a bad case of "disaster myopia."
"If you went through an earthquake, or were mugged, or whatever traumatic event it might be, you overestimate the probability of that event occurring again," Dow said. "It's because we just went through a bubble that everyone's looking for them. Generals always fight the last war, and firemen fight the last fire."
Dow similarly believes that the tremendous deal of concern about a bubble will "probably prevent it," at least for a little while.
"It's never obvious, by definition, or you wouldn't get the bubble," he said.
(Read more: 3 technical reasons to be nervous about stocks)
As a horrible year for gold continues to get even worse, several traders say that we've just about reached the level where gold is good again. And as gold futures show even more weakness on Wednesday morning, several bears are just about ready to become buyers.
"The chart of gold still looks like it has more downside, and my near-term objective in December gold futures is $1,250," Jim Iuorio of TJM Institutional Services wrote to CNBC.com. "If that level gives way, I think we will sell to $1,200 rather quickly. But at that point, I would consider a long position."
(Read more: Gold extends losses ahead of Fed minutes)
Dennis Gartman, the editor and publisher of the Gartman Letter, has long been a fan of gold in yen terms, rather than in U.S. dollar terms (which just means selling Japanese yen to buy gold). But while he's not yet interested in owning gold outright, further declines could make him change his mind, he said Tuesday on CNBC's "Futures Now."
"What's it going to take for me to get bullish of gold in dollars? Probably another violent selloff on a Friday," Gartman said. "We've seen Friday after Friday after Friday where people just throw up their hands. Give me one $50 break on the downside in gold, and you might entice me into the market at that point."
With stocks near all-time highs, John Kosar says that the market has moved too quickly and that some elements now suggest that a correction could come soon.
"I'm a little nervous up here," the technician told "Futures Now" on Tuesday. "There are a lot of indicators we're looking at, including investor sentiment, that are about as frothy as they've been in about 10 years. So I think there are a lot of little thing that, as you add them up, show that you need to be careful up here."
Reason No. 1: Investors are too bullish
The market's extreme bullishness is a "contrary indicator," said Kosar, director of research at Asbury Research. He noted that the Investors Intelligence Survey shows an outsized number of bulls.
"This is about as bullish as this group has been," he said. "When these people are all on the boat, oftentimes the boat's getting close to tilting."
Such extraordinary sentiment often occurs just before a drop in the market.
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