11:43 am EDT:  We expected rotation around the 995.25 highest volume point of control, and that is what has happened so far, with the ES having first traversed 5.25 points lower than 995.25, then 4.25 points higher.  The range should stay tight until the 2:00 pm FOMC minutes are released.  If a strong move develops on the release, we won’t fight it.  However, if the reaction is calm, we would still fade short 1004.00 to 1006.00 and would now fade long 988.00 to 992.00.

Gold has broken above its consolidating wedge and previous swing high of Aug 6 09.  The significance is that it is in the face of a declining stock market.  A strong distribution day in equities suggests deflation, which should push gold down.  Gold was our only leader yesterday that did not move as expected (according to correlations that have held for the last year).  Markets needn’t move in lock step even when they are correlated; however, today’s action must be paid heed.  To break an important technical level in a direction when the reverse is expected is significant.  The three likeliest explanations are:

1)  Recent correlations hold and gold is simply forecasting another inflation-led rally that will begin in the next few days (meaning yesterday’s correction is not the bearish bellwether everyone thinks it is), or

2) Recent correlations hold and the move today in gold is a bull trap that will be reversed in the next few days, or

3) Recent correlations have broken and gold is decoupling from other markets, including equities.  Because correlation-changing paradigm shifts are rare, this is the least likely scenario; however, should it end up being the case, the significance is tremendous.  A break above 1,000 on a decling stock market would be definitive evidence for this scenario.

We’re assigning equal weight to scenarios one and two for now, watching closely gold and the S&P 500 for clues as to which will play out.