As it stands, gold might be the better trade than stocks right now.
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Gold
After a wide $30 range Monday, gold has traded quiet, but higher through the night. Currently the market is sitting just above $1,780 level and holding strong following comments from Chicago Federal Reserve President Charles Evans, who told CNBC Monday that the Fed will continue quantitative easing until the jobless rate falls below 7 percent.
(Watch: Evans Tells CNBC Fed Will Continue Easing.)
This is clearly a market in a strong uptrend, although rallies have stalled out, the pullbacks have received strong bidding. After putting in a new high yesterday morning and trading $20 from the high a support shelf was built at $1,773. In turn, we are now seeing a new range from $1794.40 - $1,738.30. With this range, $1,765 becomes a strong support and below there at the $1,759.70 - $1,757, closing below either of these levels will be very discouraging for the bulls. Maintaining trade above yesterday's close and today's open at $1,777 will continue to be bullish and should lead to a close at or just around the $1,783.50 level.
(Poll: Where Do You See Gold Going By Year-End?)
Here are some key technical levels:
Resistance — $1783.5, $1,795 - $1,800**, $1,808
Support — $1,773*, $1,765**, $1,759.70 - $1,757***
Don’t Fight the Fed and the Trend
The S&P 500 index pulled back sharply following early gains amid Evans' comments and strong data on U.S. manufacturing.
The Institute for Supply Management said on Monday its index of national factory activity rose to 51.5 from 49.6 in August.
(Read More: US Manufacturing Expands for First Time Since May.)
The levels are important when trading as the market tested just through major resistance at the 1,449 level yesterday, the stall out should not have been a surprise as longs lightened up and the market fell back to its major support level at 1,434 presenting a great buying opportunity.
In a week that has a European rate decision Thursday and nonfarm payrolls Friday, I expect great trading ranges. The S&P is seeing strong buying this morning as concerns about Spain are eased and Australia lowered its benchmark interest rate 25 percent to 3.25 in an effort to boost economic growth. A close above 1,451.50 will lead to further short covering, but I will be looking to sell the first test as traders may not be buying too aggressively so early in a long week.
Watch these levels going forward:
Resistance — 1,449 – 1,452**, 1,457 – 1,459**, 1,463.25, 1,468, 1,480***
Support — 1,433 – 1,434**, 1,424*, 1,415 – 1,418***
Read on for 10 Things You Need to Know to Trade Futures
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—Reuters contributed to this report