Stay on the Sidelines as the Market Tests a Triple-Top Breakout, but This Commodity Is Extremely Overbought and a Must-Short

Tentatively bullish conditions played out as expected. What we described as a buy-the-dip opportunity last Friday was validated, as an AI-led rebound pushed the broader market back onto an upward trajectory. However, prices are once again approaching a major resistance zone. With Christmas approaching and many traders heading into year-end vacations, trading activity is likely to remain muted, and volatility could stay suppressed until January. Some investors are still looking for a Santa Claus rally, which may have already unfolded in recent sessions, allowing optimism to linger until a clearer signal emerges. On the other hand, one commodity is showing extreme bullish sentiment and appears increasingly attractive on the short side from both technical and fundamental perspectives.

From a technical standpoint, both the S&P 500 and Nasdaq 100 have established a solid higher-low structure following the recent rebound, but they still lack a higher-high to confirm a sustained bull trend. The indices are now pressing against key resistance, forming a potential triple-top. If this level is decisively broken in the coming days, a more constructive pattern would be confirmed and investors could turn more confident. If the resistance holds, however, the market may remain stuck near current levels and potentially drift through January.

Despite the rebound in equities, bullish sentiment failed to carry over into crypto markets. Bitcoin, ether, and other major tokens initially rallied alongside stocks, but selling pressure quickly resurfaced. Bitcoin has slipped back below the $90,000 mark, while ether has fallen under $3,000. Technically, both are now forming lower-high patterns, which signal growing downside risk. This raises concern that renewed weakness in crypto could spill back into equities, given that digital assets and technology stocks remain firmly within the same risk-sensitive category.

This backdrop explains why staying on the sidelines remains preferable at this stage. The possible triple-top suggests equities are at a critical inflection point, where a higher-low structure alone is insufficient to confirm a durable uptrend. Holiday effects and thin volumes may further dampen conviction. At the same time, weakness in crypto markets hints at renewed selling pressure and even the risk of sharper downside moves, which could weigh on overall sentiment. A clean breakout in the S&P 500 or Nasdaq 100 would make new long exposure more reasonable, but until then, caution is still warranted.

That said, a compelling opportunity is emerging elsewhere, namely on the short side of gold. Traders may consider futures, GLD options, or GLL, which offers two times inverse exposure to gold. With gains of roughly 71% year to date, the recent surge in gold appears increasingly driven by enthusiasm rather than fundamentals, creating favorable conditions for a tactical short. Using GLD as a reference, the RSI has surged to 93. The last time RSI reached similar extremes, around 93 on October 8, prices corrected by about 1.85% the following day. When RSI touched 90 on October 16, a similar decline followed and extended into a broader pullback.

Gold's rally has been fueled by expectations of additional rate cuts next year amid a softer economy and the prospect of a more dovish Federal Reserve leadership. These assumptions may prove valid and could support the metal through 2026. However, speculative positioning has pushed momentum into extreme territory. Even factors such as U.S.-China de-escalation and year-end risk aversion, which are partly amplified by low liquidity, suggest that a correction would be healthy. Consolidation could last a single session or extend for several days, allowing the market to digest recent gains before resuming its longer-term uptrend. At current levels, though, the risk-reward favors shorts, and if prices continue to rise unchecked, it would signal growing irrationality relative to fundamentals, making incremental short exposure potentially more attractive.

In this environment, with speculation dominating gold and equities facing resistance amid crypto uncertainty, positioning against a traditionally defensive asset may offer a more interesting setup. It is worth noting that gold, typically viewed as a safe haven, has effectively become one of the riskier trades as investor chasing intensifies. Extra caution is therefore warranted.