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The Stocks & Commodity Technical trading Outlook Part I

June 13th, 2011

The coming summer should be exciting for traders! While summer trading generally tends to be slow, this one could be different. A large number of other professional traders I talk with are all feeling the tension building in the market. We all think some big movements are just around the corner and the big question is which way are things going to move?

Depending on your trading style you may be viewing the recent market action as the beginning stages of a bear market (major sell off). A bear market is not necessarily impossible as the U.S. Economy is showing the beginning signs of weakness. The fact that stocks have moved lower for almost 6 weeks straight is a recent reminder that we may not be out of the woods just yet. The recent price action and negative sentiment has been harsh enough to make 99% of traders bearish.

In contrast, some traders may be seeing this market as an oversold dip preparing for a bounce/rally in the bull market which we have been in since 2009. Some traders may see this as a buying opportunity because you are a contrarian. Most contrarians generally want to do the opposite of the masses (herd) who are merely trading purely out of emotional sentiment.

I myself have mixed thoughts on the market at this point in time. I’m not a big picture (long trend forecasting) kind of guy but my trading partner David Banister is great at it. Rather I am a shorter term trader catching extreme sentiment shifts in the market with trades lasting 3-60 days in length. So looking forward 2-5 days I feel as though stocks and commodities are going to bottom and start to head higher for a 2-6% bounce. At that point we need to regroup and analyze how the market got there… Was the buying coming from the herd, institutions, or was it just a short covering rally? Additionally, where are the key resistance levels and did we break through any?

During extreme sentiment shifts in the market we tend to see investments fall out of sync with each other for a few days. I feel the attention will be on stocks and we get a bounce this week. I am expecting commodities to trade relatively flat during the same time period.

OK let’s take a quick look at the charts…

Dollar Index 4 Hour Candles
I feel as though the US Dollar is trying to bottom. It is very possible that we test the May low at which point I would expect another strong bounce and possible multi-month rally. So if the dollar drops to the May lows then we should see higher stocks and commodities, but once the dollar firms up and heads higher it will be game over for risk assets.

Crude Oil Chart – Daily
Oil took a swan dive in early May and has yet to show any signs of moving higher. Actually crude oil is looking more and more bearish as time goes by.

Silver 4 Hour Chart
Silver has formed much of the same pattern that oil has. On a technical basis its pointing to sharply lower prices still. The fact that silver bullion went from an investment to a speculative trading instrument within the past 8 months makes me think it could test the $25 area. The one thing to remember here is that silver is still overall in a bull market. This is a 50/50 guess in my opinion as it nears the apex of this pennant pattern.

Gold 4 Hour Chart
Gold has held up much better than other metals and commodities and I feel that is because it’s still seen at the REAL safe haven. But reviewing the chart Im starting to see bearish price action beginning to take place.

SP500 Futures – 10 Minute Chart Going Back 8 Days
Last week the SP500 continued to show signs of weakness. Any bounce in the market was on light volume and that is because the sellers took a break and let all the small traders buy the market back up. But once the market moved up enough then sellers jumped back in and unloaded their shares.
Last Thursday I sent out an update to members pointing out that lower prices were to be expected. I came to this conclusion because of many data points. Looking at the chart you can see sellers are clearly in control. The SP500 bounces high enough that it reached a key resistance levels going back 5 days. Also the 200 period moving average was at that level. To top that off my sentiment reading for the herd mentality was at a point which sellers like to start dumping their shares again.

Weekly Market Trading Conclusion:
In short, I am getting more bullish for a bounce as the market falls. But once we are into day 3 or 4 of a bounce we must be ready to take profits and/or look for a possible short setup.

Get my free weekly reports here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
The Stocks & Commodity Technical trading Outlook Part I




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Don’t touch these stocks with a ten-foot pole!

June 13th, 2011

Martin D. Weiss, Ph.D.Major stock sectors are now in a race for the bottom.

These are stocks on a rendezvous with their lowest lows reached in the debt crisis of 2008-2009 … sinking back into the danger zone that came with red ink, bankruptcy, and financial ruin for millions of investors.

Hard to believe that could already be happening so soon after the market peaked?

Then consider the 25 stocks I’m going to list for you in a moment, starting with PMI Group, one of the nation’s leading mortgage insurers.

Two and a half years ago, at the height of the financial crisis, this leading mortgage insurer plummeted to a low of a meager 32 cents per share.

But in the weeks and months that followed, Washington worked overtime to inject trillions of dollars into the housing market and convince the world that the Great American Nightmare — the worst real estate crash of all time — was over.

Many Americans, blinded by their faith in “almighty government,” actually fell for it: The housing market stabilized temporarily. The economy recovered a bit. Stocks rallied sharply. And PMI surged, reaching a peak of $7.10 per share last year.

But that was just the prelude to disaster …

Chart

In the ensuing months, all of the government’s housing support programs and all the government’s mortgage subsidy initiatives failed.

Nothing the government did could stop wave after wave of mortgage defaults and foreclosures.

And even the government’s massive injections of money into the mortgage market were unable to prevent PMI from crashing again, closing at a mere $1.12 per share in late trading hours this past Friday.

That’s down a sickening 84% from last year’s high!

If you had invested $10,000 in this dog at that time, you’d now have only $1,577 in your account right now.

An Unimportant Company? No!

PMI has historically been a huge player with a pivotal function in the housing finance industry — insuring mortgages against default. But now …

If big mortgage insurers like PMI go out of business or refuse to write new policies, most lenders will refuse to extend mortgage loans to anyone except those who are rich enough to buy a home for cash and don’t need a mortgage to begin with.

Moreover, PMI is on the frontline of the losing battle against a flood of bad mortgages in virtually every region of the United States.

So if this company is drowning and its stock is sinking to zero, you can be quite certain that many other companies downstream — lenders and banks, builders and realtors, REITs and other financials — are likely to face a similar fate.

As I illustrated here last week, nearly all bank and financial stocks are now in a race for the bottom — the only difference being, PMI is “winning” that race.

Just a Technical Correction?

If the housing and mortgage markets were holding up nicely, perhaps you could make that argument stick. But the fact is, all three key facets of this giant sector are coming unglued at the seams —

  1. The finances of homeowners who borrowed the money
  2. The finances of bankers who loaned them the money
  3. And the value of the home itself, the underlying collateral that’s supposed to be tapped when folks run out of money.

This is no small technicality. It’s a fundamental deterioration in the underpinnings of the entire sector.

“Why Can’t the Government Come
To The Rescue Again?” You Ask

For the simple reason that the government itself is ALSO running out of money.

But for argument’s sake, let’s say the government does somehow come up with more funds to pump into housing and mortgages.

OK. So what? What difference is that going to make?

Based on the recent history, the answer should be obvious: Not much!

Chart

Remember: No amount of government intervention has been able to prevent home prices from plunging to new lows — even lower than the bottom of March 2009, when homes were selling at deeply distressed prices. (See chart to left.)

Similarly, no amount of government intervention can prevent nearly every sector that touches housing and mortgages from suffering a similar fate.

“Martin’s Too Pessimistic.
Don’t Listen to Him!” Say My Critics

Harry Truman once said. “I never give them hell. I just tell the truth and they think it’s hell.”

That’s what my team and I do.

If anything, we’re optimists. We find the few companies that do have the wherewithal to survive and even benefit. And we see silver linings in this crisis that I’ll be glad to tell you more about in future issues.

Moreover, this is isn’t the first time we have given advance warnings about companies like PMI.

In our Safe Money Report of April 2005, well before the housing bubble peaked, we told our subscribers not to touch PMI Group and 24 other stocks with a ten-foot pole. Here they are:

Aames Investment, Accredited Home Lenders, Beazer Homes, Countrywide Financial, DR Horton, Fannie Mae, Freddie Mac, Fidelity National Financial, Fremont General, General Motors, Golden West Financial, H&R Block, KB Homes, MDC Holdings, MGIC Investment, New Century Financial, Novastar Financial, PHH Group, PMI Group, Pulte Homes, Radian Group, Toll Brothers, Washington Mutual, and Wells Fargo & Company.

(Want proof? Click here for the SMR issue of April 2005 and scroll down to page 10.)

Subsequently, 11 of these 25 companies filed for bankruptcy, were bailed out or bought out.

ALL 25 stocks plummeted, with an AVERAGE loss of 81.3%.

And even after more than two years of stock market rally, investors who bought and held these stocks are deep in the red.

(But whether they rallied or not, our advice to anyone who owns the surviving companies today is the same: Don’t touch them with a ten-foot pole!)

Later, in the financial crisis of 2008, we were the only ones who issued negative ratings and warned well ahead of time of nearly every major firm that subsequently collapsed. We warned about …

* Bear Stearns 102 days before it failed (click here for the proof)

* Lehman Brothers 182 days before (proof)

* Citigroup 110 days before (proof)

* Washington Mutual 51 days before (proof), and

* Fannie Mae 4 years before (proof).

That’s history. What counts most now is that …

It’s “Game Over” for the U.S. “Recovery”

Look. From the outset, we knew the U.S. economic recovery was rigged — bought and paid for by the greatest monetary and fiscal extravaganzas of all time.

We knew that no government, no matter how rich, can create corporate immortality: In the real world, companies are born and companies must die. I’m sure you understood that as well.

We knew that no government, no matter how autocratic, can repeal the law of gravity: When sellers are anxious to sell and buyers are reluctant to buy, prices fall. A no-brainer!

We also knew that no government, no matter how powerful, can stop the march of time: With every second that ticks by, more debts come due, more mortgages go into default, more homes are foreclosed.

And I think you knew, too. But still you ask:

“How Could This Recovery End So
Abruptly and Crumble So Dramatically?”

Answer: As we’ve been telling you all along, it was never a true recovery to begin with:

Bear Flag Lessons and Current Levels to Watch in SINA

June 9th, 2011

I’m seeing a lot of comments about Sina.com (SINA) stock, first with the run-up in share prices and now with the stellar retracement/sell-off phase underway.

Let’s take a look at the current action and mix in a few important trading tips and lessons along the way.

First, the “bigger picture” Daily Chart for perspective:

Starting with mid-2010, price traded around the $40 level which then gave-way to an upside breakout trend that steadily – with the exception of February 2011 – took price to all-time highs just shy of $150 per share.

There’s “trouble in paradise” as shares have violently retraced starting in April that took price down 50% of the rally to where we are now at $90.

We’ll soon see that $90 is an important reference level to watch, but for now, let’s just refer to it as the “half-way” point of the rally, or the 50% Fibonacci Retracement.

For reference, the 61.8% Fibonacci Retracement rests near $77.00 per share, which forms a nice confluence with the swing highs and lows along the way at that recently tested level.

Let’s take this picture into account as we zoom-in the perspective and focus on the Bear Flag pattern and levels to watch:

The main idea is that the $90 per share level is both a price target that was achieved this morning, and a potential “inflection support” point in the price structure, given the near-confluences at this level.

As with anything in technical analysis, should the $90 level fail to bring in buyers (and encourage bears/short-sellers to buy-back their positions and realize their profits), then the structure opens up for a fall down to the next open confluence at $80.

Similarly, $80 per share reflects a price confluence with the 200 day Simple Moving Average – an important reference level.

Starting with the $147 high, we observe an “impulse” move or the “Pole” of a Bear Flag that ended at $105.  According to traditional Bear Flag calculations, we want to take the distance of the Pole – roughly $42 – and subtract that from the “Flag Retracement” high, which in this case is $128 per share.

Doing the quick ‘flag’ math, $128 minus $42 is $86.  That’s sort of “in-between” our simple reference levels of $90 and $80, but we’ll take it as a reference.

Intraday or swing traders want to be watching the lower (intraday) charts for any major sign of upward impulse or reversal off the $90 level, or if $90 fails, look for a possible turn near $86.

Otherwise, if $86 fails, we could be in for a further sell-off to $80.  The same goes for short-sellers looking to cover with profits.

And now let’s learn a few quick trading tips using the recent sell-off phase as the backdrop:

I’m all for simplicity, and this is just about as simple as it gets.  Given an intraday downtrend, we often look to enter short-sale positions after a retracement up into resistance has occurred.

A better trigger – given that price can nip a bit through overhead resistance areas (like falling trendlines or EMAs) – is the breakdown of a rising “Bear Flag” style trendline that connects the lows of the retracement swing.

I’m showing four such opportunities in the context of this higher timeframe retracement – three of which worked very well and one of which (May 23) didn’t.

We have similar minor (or fractal) Bear Flags in the context of the daily chart (higher timeframe) Bear Flag and the targeting (logic) is the same.

To get even extra confirmation that an upswing is a “Retracement” and not a new upward impulse, make sure to compare volume with price.

IF price rises up in a suspected retracement AND volume declines during the rally, THEN odds are very strong that a new price low will be achieved when the retracement swing ends.

Volume declined in each of these swings, which led to a safe entry (with a stop above the most recent swing high) when price broke under the rising trendline – ending the retracement.

Buyers were stronger on the retracement up at the end of May, resulting in a scratch or small profit due to price not breaking back under $105.

The breakdown signal under $120 on June 3 more than made-up for the prior trade – it was also the intraday entry into the daily chart potential Bear Flag pattern that is very near its goal today.

We can also see the Daily Chart Bear Flag clearer when we draw the parameters (targets) on the intraday charts.

The official target is just under $90 per share, which we’ll all be watching as a potential turning point of support.  If not, then expect these lower targets to be hit soon.

Always take the time to learn lessons from the charts of your favorite stocks so that you can be prepared to recognize and act on similar opportunities in the future.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Bear Flag Lessons and Current Levels to Watch in SINA

Uncategorized

Investors are fearful and that means higher prices are around the corner

June 6th, 2011

Everyone knows people make mistakes when rushed to do something or if they are scared of something bad happening. We also know fear and greed is what moves the market each month, week, day and tick… So when the majority of investors are selling their shares at the same time you must recognize the psychology behind it and prepare for a low risk trading opportunity in the days that follow.

Stepping back and looking at the general vibe in the financial arena we hear about Quantitative Easing II coming to an end which should help the dollar gain strength again. A rising dollar means lower stock and commodity prices. Also keep in mind the United States is in so much trouble they will always have quantitative easing even if they are not calling it QE, that’s my opinion anyways…

Commodities, ETF, OPTIONS

Stock Market Structure and Support Level Update to Start the Week

May 9th, 2011

As we start the new week, let’s focus on two main ideas in the US Equity Markets – Trend Structure and Current Reference Support Levels.

Let’s start with the S&P 500:

Before we start with the chart, let’s define “Market Structure.”

In simplest terms, “Structure” refers to the progression of price swing highs and price swing lows, with an uptrend defined as a series of “Higher Highs and Higher Lows” and vice versa for a downtrend.

In other words, a Change in Market Structure can occur ONLY with a change in the sequence of highs and lows.

A single lower high, or a single lower low cannot change structure – we need the market to make BOTH a lower high AND a lower low then officially take out the lower low to reverse a structural uptrend that we have in place now.

So with that in mind, in each of the charts I have labeled key (important) Swing Highs and Lows with Green Bars in the progressive uptrend, or a Red Bar as a “Caution” or warning sign of possible reversal.

As structure stands now, the recent action formed both a higher low and higher high in all three equity indexes – and that will be confirmed if we continue to rally off our critical support level as we’ll see in each market.

Starting with the S&P 500, we had a “Warning” with the slightly lower April swing high (you could almost consider that a neutral high) which resulted in a higher low then the recent higher high at 1,370.

In terms of Key Daily Support:  Watch the Rising 20 day EMA and critical price pivot at 1,340.

No matter what fundamentals, opinion, or news suggest, as long as the S&P 500 remains above the 1,340 level, the market remains in a bullish uptrend which favors long positions until proven otherwise with a breakdown under 1,320 (50d EMA) then preferably the 1,300 critical “Round Number” reference level.  Keep those in mind as you trade the weeks ahead.

The picture is very similar in the Dow Jones Index:

The only difference in structure in the Dow Jones is that price actually made a slight higher high into April while the S&P 500 matched its 1,340 high.

Also, notice how volume increased slightly during the late-April rally – that’s bullish.

Otherwise, the Critical Daily Support is similarly the rising 20d EMA at 12,650, or the May low from last week at 12,500.

As long as the Dow Jones remains above this pivot, it too is an objective, chart-based uptrend.

A move under 12,400 calls the uptrend into question, and a breakdown under 12,100 (preferably the 12,000 obvious reference level) seriously throw the uptrend into a potential early reversal.  Until then, the chart signs are positive until proven otherwise.

The NASDAQ shows a slightly weaker structure and key reference level support:

I call the NASDAQ Structure weaker because it formed a clean lower high and lower low (due to the deeper pullback/swing low in January, relative to the S&P 500 and Dow Jones) recently as shown by the red lines.

Price did not dip beneath the 2,600 “Differential Pivot,” and has succeeded in producing both a higher low and higher high, reaffirming the powerful uptrend in place and tipping the odds back in favor of the buyers/bulls.

The reference levels for the NASDAQ are the Rising 20d EMA at 2,820, the rising 50d EMA at 2,780, and finally the April swing low at 2,700.

It would likely take a breakdown under 2,600 for an official call of “Downtrend Reversal” in the NASDAQ.

In Summary:

All three major equity indexes show a positive/bullish uptrend structure, along with positively-sloped daily EMAs (also a component of structure), with price above these rising EMAs in all cases.

As long as price remains above the 20d EMA and these support levels, any sort of bearish or counter-trend move is lower probability than pro-trend moves – meaning it’s best to let the market top officially before trying to be the great hero who calls the perfect top.

Let the market tip its hand first by breaking structural support areas before playing out large bearish positions.

If the uptrend does continue as the chart tends to suggest, the easier money will be made by trading with the trend and having logical stops underneath these critical support zones, depending on your own personal trading style and risk-management strategies.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Stock Market Structure and Support Level Update to Start the Week

Uncategorized

Stock Market Structure and Support Level Update to Start the Week

May 9th, 2011

As we start the new week, let’s focus on two main ideas in the US Equity Markets – Trend Structure and Current Reference Support Levels.

Let’s start with the S&P 500:

Before we start with the chart, let’s define “Market Structure.”

In simplest terms, “Structure” refers to the progression of price swing highs and price swing lows, with an uptrend defined as a series of “Higher Highs and Higher Lows” and vice versa for a downtrend.

In other words, a Change in Market Structure can occur ONLY with a change in the sequence of highs and lows.

A single lower high, or a single lower low cannot change structure – we need the market to make BOTH a lower high AND a lower low then officially take out the lower low to reverse a structural uptrend that we have in place now.

So with that in mind, in each of the charts I have labeled key (important) Swing Highs and Lows with Green Bars in the progressive uptrend, or a Red Bar as a “Caution” or warning sign of possible reversal.

As structure stands now, the recent action formed both a higher low and higher high in all three equity indexes – and that will be confirmed if we continue to rally off our critical support level as we’ll see in each market.

Starting with the S&P 500, we had a “Warning” with the slightly lower April swing high (you could almost consider that a neutral high) which resulted in a higher low then the recent higher high at 1,370.

In terms of Key Daily Support:  Watch the Rising 20 day EMA and critical price pivot at 1,340.

No matter what fundamentals, opinion, or news suggest, as long as the S&P 500 remains above the 1,340 level, the market remains in a bullish uptrend which favors long positions until proven otherwise with a breakdown under 1,320 (50d EMA) then preferably the 1,300 critical “Round Number” reference level.  Keep those in mind as you trade the weeks ahead.

The picture is very similar in the Dow Jones Index:

The only difference in structure in the Dow Jones is that price actually made a slight higher high into April while the S&P 500 matched its 1,340 high.

Also, notice how volume increased slightly during the late-April rally – that’s bullish.

Otherwise, the Critical Daily Support is similarly the rising 20d EMA at 12,650, or the May low from last week at 12,500.

As long as the Dow Jones remains above this pivot, it too is an objective, chart-based uptrend.

A move under 12,400 calls the uptrend into question, and a breakdown under 12,100 (preferably the 12,000 obvious reference level) seriously throw the uptrend into a potential early reversal.  Until then, the chart signs are positive until proven otherwise.

The NASDAQ shows a slightly weaker structure and key reference level support:

I call the NASDAQ Structure weaker because it formed a clean lower high and lower low (due to the deeper pullback/swing low in January, relative to the S&P 500 and Dow Jones) recently as shown by the red lines.

Price did not dip beneath the 2,600 “Differential Pivot,” and has succeeded in producing both a higher low and higher high, reaffirming the powerful uptrend in place and tipping the odds back in favor of the buyers/bulls.

The reference levels for the NASDAQ are the Rising 20d EMA at 2,820, the rising 50d EMA at 2,780, and finally the April swing low at 2,700.

It would likely take a breakdown under 2,600 for an official call of “Downtrend Reversal” in the NASDAQ.

In Summary:

All three major equity indexes show a positive/bullish uptrend structure, along with positively-sloped daily EMAs (also a component of structure), with price above these rising EMAs in all cases.

As long as price remains above the 20d EMA and these support levels, any sort of bearish or counter-trend move is lower probability than pro-trend moves – meaning it’s best to let the market top officially before trying to be the great hero who calls the perfect top.

Let the market tip its hand first by breaking structural support areas before playing out large bearish positions.

If the uptrend does continue as the chart tends to suggest, the easier money will be made by trading with the trend and having logical stops underneath these critical support zones, depending on your own personal trading style and risk-management strategies.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Stock Market Structure and Support Level Update to Start the Week

Uncategorized

Parabolic Moves are Only Temporary for Silver and Gold

May 5th, 2011

The past few weeks we have been seeing the US Dollar slide to new lows at an increasing rate. The strong devaluation of the dollar has sent precious metals like silver and gold rocketing higher out of control sending them parabolic!

During the past 6 weeks both silver and gold have been rising in a parabolic formation. Meaning the price is going straight up with strong volume as everyone gets greedy and buys into the commodities at the same time. Most of you who follow my work already know that if the general public is piling into an investment rocketing prices higher, you better start focusing on tightening your protective stops and or taking some profits off the table before the price collapses.

Take a look at the weekly chart of Silver below:
Silver was grinding its way higher from July into March of this year. Only in the past 6-7 weeks did we start to see silver open up and run with expanding candles growing at an accelerated rate. This virtually straight up rally is a signature pattern and tells me that price action is now VERY unpredictable and anyone getting involved should be tightening their stops and or taking partial profits on price surges.

Parabolic moves can provide some big gains but most traders end of giving it all back and then some because the price can drop very abruptly as seen on this chart.

The weekly chart of gold below shows much of the same thing but without the extreme volatility that silver has.

Now, if you take a look at the US Dollar chart it’s starting to look very bullish in my opinion. The chart shows a falling wedge which typically means the selling pressure should be coming to an end soon. I’m not sure how large the bounce/rally will be. I do think a quick move to the 75 level is very likely in the near future though.

I find that metals tend to turn just before the dollar does. So I’m very cautious here on buying any stocks or commodities at the moment. The past 2 years we have seen stocks and commodities have an inverse relationship with the dollar so a rising dollar means a market pullback will take place. Sell in May and Go Away…?

Mid-Week Trading Conclusion:
In short, we exited our SP500 position this week for a nice 6% gain in a couple weeks making that our third profitable back to back index play. At this time I’m not ready to buy or short the market until all the charts line up for another low risk entry point. Things are 50/50 odds here and that’s not good enough for me.

That’s it for now, but remember you can get my free trading reports each week at: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
Parabolic Moves are Only Temporary for Silver and Gold




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Look at these ETF Charts SLV ZSL Before Calling a Top in Silver

April 21st, 2011

Are you trying to call a top in silver?

You’re not alone – I’ve been picking up on a lot of chatter in the blog (and email) world about traders and analysts trying to call that proverbial “top” in Silver “any day now.”

Before you can’t fight the temptation any longer, at least take a look at these four charts – Two Daily and Two Weekly – of major Silver ETFs SLV (bullish) and ZSL (ultra-bearish).

Let’s start with SLV Weekly for our reference:

In this post, I’ll specifically be focusing on a few key chart points:

1.  Bernanke’s “Jackson Hole” Speech that introduced us to QE2 on August 27, 2010
2.  The “Weekly Pullback” to the 20 EMA in January 2011
3.  Volume and Momentum Insights

I need not remind you that Bernanke’s QE2 speech (“We will do anything to prevent a second recession”) helped kick-off the inflationary commodity rally we’re seeing now – but that’s completely another story.

Second, the “Weekly Pullback” in January was an interesting topic, as the daily chart (as you’ll see) had plenty of warning signs of a potential “top” and “reversal” that was shortable … but wound up being nothing more than a clean and easy pullback (retracement) to the rising 20 week EMA – an intermediate term BUY signal.

In terms of momentum and volume, we’re seeing CONFIRMATIONS from both instead of negative divergences on both the weekly and daily frame – that is a sign of likely price continuation.

Now let’s flip down to the daily chart:

Again, we can see the “Blast-off” in price at the end of August which coincided with Mr. Bernanke’s QE2 announcement (which would begin officially in November, though markets tend to move ahead/in advance of actual events).

The MAIN IDEA with the daily chart is what happened in the run-up to January 2011.

Generally, if you’re going to call a top, it’s best to wait for confirming signals of potential trend reversal.

These include lengthy negative divergences in both volume and momentum (which were present as shown) and then triggers from price in the form of breakdowns under rising price trendlines (hand-drawn) or moving averages (such as the 20 or 50 day EMAs as shown above).

So, if you’re going to call tops, it’s best to wait for triggers that form AFTER divergences or some other non-confirmation are present.

Even with all that bearish wind at traders backs, SLV (silver) did not reverse, but instead just pulled back to the rising 20 week EMA (higher timeframe support) and launched up from there.

This is a key point in Multiple Timeframe Analysis – wherein the daily (or short-term) chart can signal a clean reversal… which turns out to be nothing more than a standard pullback on the Weekly (higher) frame.

Anyway, with Silver shaking off that potential reversal signal in January, the next BUY signal came on the breakout to new highs in February above $30 per share (roughly $3.00 per ounce).

I’ve posted many times that the two leading trading strategies in strongly up-trending markets are retracements to rising EMAs/Trendlines or price Breakouts to new chart highs.

What we’re seeing now is the remainder of the current rally which – again – is confirmed with bullish surges in volume and momentum – these are things you do not use as bearish short-sell catalysts.

A main point from the current chart is that, while there is not a corresponding buy signal (as in, no breakouts above pre-existing resistance and of course no pullback to support), there is – as of this moment – NOT a bearish short-sell signal (given that price is rising and overextended… but overextension alone is not a reason to short).

Now, let’s flip the tables and move away from the Bullish SLV chart to the Ultra-Short ETF – ZSL:

Before getting too deep into the chart, keep in mind ProShares announced a 10 to 1 Reverse Split for ZSL on April 14th, 2010.

The long-term fate of leveraged inverse ETFs almost always means a trajectory headed to $0 per share … which is why they will have to CONTINUE reverse-splitting most leveraged inverse ETFs every few years (particularly if there are strong rallies in the underlying market) … but that too is another story.

I’m really showing this chart for comparison purposes, and as a reminder that double or triple leveraged inverse ETFs are for very short-term (perhaps only intraday) trading purposes – you should not invest long-term in leveraged inverse ETFs.

The main point of this chart is the literal surge in volume in 2011 – which one would assume is a rush of risky/aggressive traders seeking to profit from a potential top in silver.

So far, that has been a losing bet, as seen from the daily chart:

Again, I’m just going to focus on a few things.

First, when Bernanke announced the initial QE2 plans in August 2010, ZSL sold for $140 per share.  Today, it’s at $15 per share.  That’s a 90% decline and – mark my words – ZSL will NEVER see $140 per share again (without a reverse split).

Let’s assume silver fell from $40 per ounce to $20 per ounce – a 50% decline.

One would thus assume the ZSL – a double-leveraged inverse fund – would increase 100% which is an enviable gain.

$15 per share times two (increased 100%) is $30 per share.

Oops.

Anyway – again this topic is a huge issue for another conversation, but it underscores the importance of reading an ETF’s prospectus (and doing your research) carefully before purchasing an ETF.

Moving on – the surge in volume from March to present either indicates that more people are now aware of the ZSL fund… or that more people are finding shares just too irresistable to snatch up a position that will rally a large percentage gain (but NOT large share price gain – certainly NOT back to $140 per share or even $100 per share) in the event Silver does top soon.

Now going back to the main point – our weekly pullback phase in January (when it looked like Silver had topped on the daily chart) led to a ZSL move from $40 to $50 per ounce (a 25% gain) but now price is 70% lower ($50 to $15) and still declining.

To make a long story short, any type of trend reversal strategy is inherently more risky than playing for trend following strategies – given the foundation of technical analysis is built on the notion of trend continuity.

Martin Pring (Technical Analysis Explained) defines Technical Analysis as:

“The Art of identifying a trend at its earliest stages and riding that trend [trading in the direction of the trend] until the weight of the evidence proves that the trend has reversed.”

To me, “weight of the evidence” takes into account a variety of factors including sentiment, momentum, volume, trendlines, moving averages, reversal candles, exhaustion gaps, and many more concepts/indicators.

Right now, we’re seeing “price overextended” (a vague term) and high bullish sentiment.  That’s not the weight of the evidence.

We’re NOT seeing divergences, trendline breakdowns, EMA breakdowns, etc.  It would be much safer to short silver if we started to see some of those… but even then we DID see those in January 2011 that was nothing more than a weekly chart pullback ahead of the recent rally from $30 to $45.

One of technicians’ favorite saying is the well-known:

“A market can remain irrational longer than you (your account) can remain solvent” along with

“Trends tend to go higher (or lower) than almost anyone thinks they can go.”

So until we start seeing some material chart evidence of a reversal according to the “weight of the evidence” model, it’s probably a good idea to resist the urge to be a hero and call a top in this powerful metal until we see some objective sort of sign of reversal other than “it’s really expensive and overextended.”

Unless you’re required to trade Silver, there’s probably better reward/risk opportunities elsewhere.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Look at these ETF Charts SLV ZSL Before Calling a Top in Silver

ETF, Uncategorized

Look at these ETF Charts SLV ZSL Before Calling a Top in Silver

April 21st, 2011

Are you trying to call a top in silver?

You’re not alone – I’ve been picking up on a lot of chatter in the blog (and email) world about traders and analysts trying to call that proverbial “top” in Silver “any day now.”

Before you can’t fight the temptation any longer, at least take a look at these four charts – Two Daily and Two Weekly – of major Silver ETFs SLV (bullish) and ZSL (ultra-bearish).

Let’s start with SLV Weekly for our reference:

In this post, I’ll specifically be focusing on a few key chart points:

1.  Bernanke’s “Jackson Hole” Speech that introduced us to QE2 on August 27, 2010
2.  The “Weekly Pullback” to the 20 EMA in January 2011
3.  Volume and Momentum Insights

I need not remind you that Bernanke’s QE2 speech (“We will do anything to prevent a second recession”) helped kick-off the inflationary commodity rally we’re seeing now – but that’s completely another story.

Second, the “Weekly Pullback” in January was an interesting topic, as the daily chart (as you’ll see) had plenty of warning signs of a potential “top” and “reversal” that was shortable … but wound up being nothing more than a clean and easy pullback (retracement) to the rising 20 week EMA – an intermediate term BUY signal.

In terms of momentum and volume, we’re seeing CONFIRMATIONS from both instead of negative divergences on both the weekly and daily frame – that is a sign of likely price continuation.

Now let’s flip down to the daily chart:

Again, we can see the “Blast-off” in price at the end of August which coincided with Mr. Bernanke’s QE2 announcement (which would begin officially in November, though markets tend to move ahead/in advance of actual events).

The MAIN IDEA with the daily chart is what happened in the run-up to January 2011.

Generally, if you’re going to call a top, it’s best to wait for confirming signals of potential trend reversal.

These include lengthy negative divergences in both volume and momentum (which were present as shown) and then triggers from price in the form of breakdowns under rising price trendlines (hand-drawn) or moving averages (such as the 20 or 50 day EMAs as shown above).

So, if you’re going to call tops, it’s best to wait for triggers that form AFTER divergences or some other non-confirmation are present.

Even with all that bearish wind at traders backs, SLV (silver) did not reverse, but instead just pulled back to the rising 20 week EMA (higher timeframe support) and launched up from there.

This is a key point in Multiple Timeframe Analysis – wherein the daily (or short-term) chart can signal a clean reversal… which turns out to be nothing more than a standard pullback on the Weekly (higher) frame.

Anyway, with Silver shaking off that potential reversal signal in January, the next BUY signal came on the breakout to new highs in February above $30 per share (roughly $3.00 per ounce).

I’ve posted many times that the two leading trading strategies in strongly up-trending markets are retracements to rising EMAs/Trendlines or price Breakouts to new chart highs.

What we’re seeing now is the remainder of the current rally which – again – is confirmed with bullish surges in volume and momentum – these are things you do not use as bearish short-sell catalysts.

A main point from the current chart is that, while there is not a corresponding buy signal (as in, no breakouts above pre-existing resistance and of course no pullback to support), there is – as of this moment – NOT a bearish short-sell signal (given that price is rising and overextended… but overextension alone is not a reason to short).

Now, let’s flip the tables and move away from the Bullish SLV chart to the Ultra-Short ETF – ZSL:

Before getting too deep into the chart, keep in mind ProShares announced a 10 to 1 Reverse Split for ZSL on April 14th, 2010.

The long-term fate of leveraged inverse ETFs almost always means a trajectory headed to $0 per share … which is why they will have to CONTINUE reverse-splitting most leveraged inverse ETFs every few years (particularly if there are strong rallies in the underlying market) … but that too is another story.

I’m really showing this chart for comparison purposes, and as a reminder that double or triple leveraged inverse ETFs are for very short-term (perhaps only intraday) trading purposes – you should not invest long-term in leveraged inverse ETFs.

The main point of this chart is the literal surge in volume in 2011 – which one would assume is a rush of risky/aggressive traders seeking to profit from a potential top in silver.

So far, that has been a losing bet, as seen from the daily chart:

Again, I’m just going to focus on a few things.

First, when Bernanke announced the initial QE2 plans in August 2010, ZSL sold for $140 per share.  Today, it’s at $15 per share.  That’s a 90% decline and – mark my words – ZSL will NEVER see $140 per share again (without a reverse split).

Let’s assume silver fell from $40 per ounce to $20 per ounce – a 50% decline.

One would thus assume the ZSL – a double-leveraged inverse fund – would increase 100% which is an enviable gain.

$15 per share times two (increased 100%) is $30 per share.

Oops.

Anyway – again this topic is a huge issue for another conversation, but it underscores the importance of reading an ETF’s prospectus (and doing your research) carefully before purchasing an ETF.

Moving on – the surge in volume from March to present either indicates that more people are now aware of the ZSL fund… or that more people are finding shares just too irresistable to snatch up a position that will rally a large percentage gain (but NOT large share price gain – certainly NOT back to $140 per share or even $100 per share) in the event Silver does top soon.

Now going back to the main point – our weekly pullback phase in January (when it looked like Silver had topped on the daily chart) led to a ZSL move from $40 to $50 per ounce (a 25% gain) but now price is 70% lower ($50 to $15) and still declining.

To make a long story short, any type of trend reversal strategy is inherently more risky than playing for trend following strategies – given the foundation of technical analysis is built on the notion of trend continuity.

Martin Pring (Technical Analysis Explained) defines Technical Analysis as:

“The Art of identifying a trend at its earliest stages and riding that trend [trading in the direction of the trend] until the weight of the evidence proves that the trend has reversed.”

To me, “weight of the evidence” takes into account a variety of factors including sentiment, momentum, volume, trendlines, moving averages, reversal candles, exhaustion gaps, and many more concepts/indicators.

Right now, we’re seeing “price overextended” (a vague term) and high bullish sentiment.  That’s not the weight of the evidence.

We’re NOT seeing divergences, trendline breakdowns, EMA breakdowns, etc.  It would be much safer to short silver if we started to see some of those… but even then we DID see those in January 2011 that was nothing more than a weekly chart pullback ahead of the recent rally from $30 to $45.

One of technicians’ favorite saying is the well-known:

“A market can remain irrational longer than you (your account) can remain solvent” along with

“Trends tend to go higher (or lower) than almost anyone thinks they can go.”

So until we start seeing some material chart evidence of a reversal according to the “weight of the evidence” model, it’s probably a good idea to resist the urge to be a hero and call a top in this powerful metal until we see some objective sort of sign of reversal other than “it’s really expensive and overextended.”

Unless you’re required to trade Silver, there’s probably better reward/risk opportunities elsewhere.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Look at these ETF Charts SLV ZSL Before Calling a Top in Silver

ETF, Uncategorized

Gold and Stocks Rally but is it time for a Little Pullback

April 21st, 2011

It has been a very interesting week thus far. Monday kick started traders with a heart pounding equities sell off which sent money into the US Dollar, precious metals and bonds as the safe havens of choice.

A lot has happened this week on a technical analysis basis which I can’t really show in a written report like this. But can do so in detail within my video newsletter. There are just to many charts required and layers of analysis to cover… But I can cover some of the points and my thoughts using the charts below:

SPY 30 Minute Intraday Chart
This chart shows the volume traded at various price levels for the SP500 index. These high volume levels act as support or resistance depending if you are above or below them. On Wednesday we had large gap higher into a resistance level which the market could not break through. So I am expecting to see the market take a pause and fade back down to fill part or all of Wednesday’s gap window.

While most gaps tend to get filled. Gaps that occur right at the beginning of a new trend when momentum is strong. They generally do not fill all the way down to the bottom. I expect a couple days of sideways to lower price action. Buyers should step back in and send the market higher next week if this trend is to continue.

GDX – Gold Miner Stocks – Daily Chart
Gold stocks have been underperforming the price of gold bullion for several months. This typically is not a strong sign for physical gold prices. That being said I do feel the majority of investors are seeking true safety and want to own real gold and not some highly leveraged gold stock. This to me is more of a risk off trade for global investors and it explains the performance.

From the recent price action shown on the GDX chart I am expecting to see prices trade sideways or lower in the coming days. A sideways move would actually be bullish and would signal a possible breakout to upside. So that is what I am hoping will unfold in the coming days/weeks.


US Dollar Daily Chart

The dollar continues to get sold at a tremendous rate and the Fed is devaluing the currency as quickly as they can trying and save the world one dollar at a time…
The trend is strongly down but it’s starting to near a point where we should start to keep a closer eye on it for signs of a reversal to the upside. When the dollar makes a move higher and starts a rally it will put downward pressure on stocks and commodities. We must be prepared to move our protective stops ups and possibly take advantage of falling prices in the near future. Until then remain long equities and commodities.

Mid-Week Trend Conclusion:
In short, it looks as though stocks and commodities are in favor again. Monday’s panic sell off looks to have shaken the masses out of the market and the big money players were buying up all the shares they could. Members and myself are sitting nicely in our long positions and this could be the start of something exciting.

You can get my Pre-Market Trading Analysis Videos, Intraday Chart Updates and Trade Alerts with my Premium Newsletter: http://www.thegoldandoilguy.com/free-preview.php

Chris Vermeulen

Read more here:
Gold and Stocks Rally but is it time for a Little Pullback




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, ETF

Silver And Gold Continue Explosive Rally As S&P Downgrades U.S. Debt

April 18th, 2011

Regardless of whether a compromise is reached over the approaching lockdown of the United States ceiling and the raising of the debt, this impasse has momentous significance for holders of gold (SPDR Gold Shares (GLD)) and silver (iShares Silver Trust (SLV)). The serious weaknesses of our economic structure is exposing it as a paper tiger. Instead of seeking fiscal sanity, the inability of our leaders to agree on even the smallest of issues is reminiscent of the Roman Empire dealing out bread and circus to the masses when Rome could no longer afford the good times and the games.

Let’s look at the pathetic reality. Our legislators are unable to come up with as little as 2% of a total budget measured in the trillions. While the Republicans and the Democrats are separated by only several billions, the underlying issues are ignored. This may be because we are witnessing political theater in a dress rehearsal for the 2012 election. The actual battlefields on which both sides face one another are not only fiscal, but ideological as the debate raged over Planned Parenthood funding. The media in their attempt to sell newspapers and program time sensationalize the basic issues. Simply put, we are approaching insolvency. Our ship of state is sailing straight into a sea of icebergs. Sooner or later we will have to come to grips with the urgent reality that belts will have to be tightened. If we do not sober up to the reality of our situation, the decision to keep our national vessel afloat will occur whether we like it or not.

Remember that we have to borrow forty-three cents out of every dollar that we use to pay for our expenses. To put it succinctly, 50% of our population pays no taxes. The revenues to pay our national debts are coming off of the hides of the middle class, the wage earners and the small businesses. It is somewhat peculiar that the basic truths for our survival are not mentioned. Do not be diverted by the ambient noise that tends to complicate the issue. We have been sidetracked by irrelevant issues; we are spending ourselves into a financial quagmire. This is hurting the hard-working middle class who are dealing with a deteriorating US dollar (PowerShares DB US Dollar Index Bullish (UUP)) and simultaneously carrying the load of increased tax burdens. Also long-term yields are rising and institutional investors are selling their US debt holdings raising long-term yields (iShares Barclays 20+ Year Treas Bond (TLT)).

It would all be worthy of a Fellini farce if it weren’t so sad. The situation cries out for solutions I’ve proposed in the heat of the financial meltdown, concentrating on precious metals and key natural resource stocks to hedge against a dollar devaluation and burgeoning debts. We have protected ourselves with gold, silver, and mining stocks (Market Vectors Gold Miners ETF (GDX)), which have soared over the past two years since the credit collapse.

What goes completely unmentioned is the role of the Fed in the entire equation. The Federal Reserve Bank is the one factor in this equation that has the unquestioned, uncontrolled power to change unexpectedly the best laid plans. The Fed is omnipresent, omniscient and omnipotent. All this time it watches and waits. One change in the Fed discount rate, one raise in margin, one change in the direction of interest rates and quantitative easing by the Imperial Fed can rewrite the whole script. They are accountable to no one and answer to no one. They can and have, if needed, print fiat money and cheap paper to obfuscate growing budget deficits. All eyes are on QE ending in June and what will occur with long-term interest rates (iShares Barclays 20+ Year Treas Bond (TLT)). As the act continues in Washington, as the Democrats and Republicans try to show the masses who is more fiscally prudent, the reality is that the Fed will have to continue printing cheap dollars to pay off huge debts. Investors realize this and that is why we are seeing these major moves in gold (Proshares Ultra Gold (UGL)) and silver (ProShares Ultra Silver (AGQ)).

Let us keep a firm hand on the wheel and steer a sound course with the compass tuned to the North Star of our technical discipline. It is important to remember that the charts give us clues during this treacherous times and allows us to go where the smart money is moving.

We are living in extremely volatile times and the market will play on our mind and emotions. That is why it is crucial that we become stronger than the average investor who easily gets caught up with the herd mentality. These amateur investors get aggressive at overbought levels and dump their positions during sell-offs. Remember when you invest in anything you become subject to inner feelings of anxiety and greed. You need to realize that a technical system protects you from becoming subject to the dangerous, contagious emotions of the investment community. I have unfortunately learned that what takes you months to earn can be taken from you in a matter of days.

In August, I predicted a major change in the gold:silver ratio and believed silver would significantly outperform gold. On August 25, 2010, I wrote on my blog, “While I am bullish on gold, I believe investors could see a higher percentage move in silver.” The gold silver:ratio has dramatically favored silver since I wrote that. Silver is extremely volatile and has often in the past exceeded its measured targets. It is much less reliable for timing purposes than gold and could easily overshoot my late January $40 target. The US dollar is heading into new lows without showing any sort of dead cat bounce, which is quite concerning. Investors have flocked to the Euro (CurrencyShares Euro Trust (FXE)) which is quite dangerous for some countries paying back huge debt burdens and for countries who rely on exporting overseas. Do not be surprised if we see some economic weakness resurfacing in the eurozone.

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Read more here:
Silver And Gold Continue Explosive Rally As S&P Downgrades U.S. Debt

Commodities, ETF

Another Do or Die Point for Equities & Gold – Get Ready!

March 24th, 2011

Equities and Precious Metals are on the edge of another rally and it could start as early as tomorrow.

On March 13th I posted some of my analysis online showing how the market was trading at a key pivot point and that a sharp price movement was about to unfold. I also provided everyone with the direction in favor which played out perfectly catching a 4.5% in three days.

As of today we are getting the same setup I saw on March 13th, but this time it’s pointing to higher prices. Take a quick look at the charts I was looking at for both the SP500 and gold and you will notice that the SP500 and gold both moved to the support levels before starting to bounce: http://www.thegoldandoilguy.com/articles/it%E2%80%99s-do-or-die-week-for-equities-and-gold/

While we caught the move down on the SP500 playing the SDS Double leveraged inverse fund we did not take part in falling gold prices. Reason being, there is so much fear in the market and the amount of surprise news popping up each week I don’t think shorting precious metals is a safe call. Rather I am looking for a pullback to cleanse the holders of the commodity then I will buy once price confirms the continuation pattern has completed.

Now, stepping forward to this week’s price action

SPY Daily Chart
We can see in the chart below that price is currently testing a key resistance level. Before the week is over we could see some big price movement equities. I need to see what happens tomorrow but I have a feeling we could see a breakout to the upside for a long position.

Commodities

It’s Do or Die Week for Equities and Gold

March 13th, 2011

The past couple weeks have been choppy in the equities market. While the strong intraday moves are great for day traders, it is extremely difficult for swing/position traders who normally hold positions for 3-60 days in length, which is my focus with this newsletter. That being said, we are reaching a do or die point for the equities market and next week there should be a strong move out of this trading range.

On the volume side of things, we have been seeing distribution taking place. Heavy volume continues to step into the market unloading large amounts of shares. The interesting part is that the majority of traders are bullish and sentiment levels are at extremes. Also, we are seeing the retail trader enter the market… What does this mean? It means we must trade very cautious and large positions on the long side shouldn’t be taken. The selling volume and extreme bullish sentiment are warning us that a correction is near.

There are a few things I watch to identifying trend reversals and they are accumulation or distribution of shares, Extreme sentiment readings, Market internals/breadth, and if the price relative to the 20 SMA. Currently we are seeing all the signs of a reversal to the down side, but it has yet to be confirmed.

My trading buddy JW Jones who focuses strictly on Options Trading has been cleaning up with the current volatility making 21%, 50% and 67% returns on his last threes trades. This guy loves volatility and always seems to put together an option play with very little risk yet big upside potential.

Let’s take a look at a couple charts…

SP500 60 minute chart going back 2 months
This chart shows a possible trend reversal unfolding. We are seeing distribution selling, lower prices with the current price trading under a key resistance level. Also my internal/sentiment indicators are showing waves of buying/bullish market action which is quickly met with strong selling pulling prices back down.

Trading during trend reversals is difficult because the potential downside risk is higher when entering a position. If traded, only small positions should be taken until a trend is established, then you can build/add to your position on pullbacks or bounces depending on the direction in your favor.

My current bias is for lower prices in the coming days, but until we break above February’s high or Last week’s low with strong volume it’s a little more of a guessing game. If we see the SP500 rise early next week and fill the gap and the market internal indicators show extreme short term overbought conditions, it will make for another great low risk shorting opportunity. Shorting just under a key resistance level means the protective stop is only 1-2% away from our entry point and makes for a solid 1:3 risk/reward ratio. On the flip side, if the market has a strong rally and closes above the key resistance level then the tables will have turned and a new up trend should start.

Gold 60 Minute Chart going back 2 months
Gold has had a nice push up in the past few weeks due to the issues in the Middle East. We saw this yellow metal make a new high but has since pulled back down and could have another move lower in the coming week. The $1380-1390 level should act as a strong support zone. The daily and 60 minute chart both show support at that area. Silver is in the same boat. Keep an eye this…

Weekend Trend Analysis:
In short, stocks and commodities are nearing a tipping point and there should be a large move in either direction starting this week if all goes according to plan. The big question is which way are prices going to go? My current bias is for more downside until we see a good washout in the market. It could be 2-8% lower from where the market closed on Friday. After that I think a grind higher into May could easily take place but we will see how the charts unfold going forward.

Each week there seems to be some type of surprise economic, political or natural disaster of some sort making trading not only tougher to trade but riskier because price swings are large. Keep trading to a minimum and small for now.

Get these reports sent to your inbox each Sunday & Wednesday: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Read more here:
It’s Do or Die Week for Equities and Gold




Chris Vermeulen is a full time daytrader and swing trader specializing in trading (NYSE:GLD), (NYSE:GDX), XGD.TO, (NYSE:SLV) and (NYSE:USO). I provide my trading charts, market insight and trading signals to members of my newsletter service. If you have any questions feel free to send me an email: Chris@TheGoldAndOilGuy.com This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Commodities, OPTIONS

Seven Charts from Last November … You Must See!

March 5th, 2011

Bryan Rich

Last November, the Fed officially announced its plans for a second round of quantitative easing — better known as QE2. This was a step most experts confidently professed would destroy the dollar.

Despite the bear-mania surrounding the dollar at the time, I saw it differently, especially given the hindsight provided from the Fed’s first adventure with QE.

My conclusion: It was clear that a draconian outcome for the dollar wasn’t in the cards.

So three days after the Fed’s announcement, I showed you seven charts here in Money and Markets that made the case for the buck.

And I’ve been proven right …

In fact, the dollar is higher now against a benchmark basket of currencies than it was before QE2!

Today, as we’ve reached the half-way point of the Fed’s QE2 program, I’d like to revisit those seven charts from November 6, 2010 and look back on how my analysis has played out.

Chart #1:
Long-term dollar cycles

My analysis then: The chart below is the roughly seven-year cycles in the dollar, dating back to the failure of the Bretton Woods system 40 years ago. These cycles argue that a bull cycle in the dollar started in March 2008.

Chart

That would put the dollar just 2.6 years into its new bull cycle or a bit more than a third of the way through a typical long-term dollar cycle.

Without question, this recent cycle has been very volatile. But the buck continues to trade comfortably above its 2008 all-time lows and the lows of last year [2009], making higher lows along the way — a bullish pattern.

Here’s what happened: The dollar bottomed a day after the Fed’s formal announcement on QE2 and rose nearly 8 percent in the following weeks. It is still more than 1 percent stronger than it was last November and remains in a multi-year bull cycle.

Chart #2:
10-year dollar chart

My analysis then: The chart below shows the roughly seven-year downtrend in the dollar and the subsequent ascending channel that started in 2008. You can see that the dollar is now testing the bottom line of this bull channel, an attractive area to buy the greenback.

Chart

A bounce from these levels would project a move toward the top line of the channel or about 23 percent higher.

Here’s what happened: The dollar continues to hold the bottom line of this ascending channel (in red), which makes it a very attractive, low risk area to BUY dollars.

Chart #3:
10-year euro chart

My analysis then: This chart for the euro is essentially the inverse of the dollar. And here too, you can see a long multi-year trend, higher in the case of the euro, followed by a descending channel.

Chart

The euro also is bumping into a technical boundary, one that represents a downward trending channel. A fall from this level of resistance would open up a downside for the euro that would be right on target with most bearish estimates espoused when the euro zone was at the height of its crisis … parity versus the dollar.

Here’s what happened: The five-month rally in the euro topped out the day of the Fed’s November QE2 announcement. Over the next two months it fell nearly 10 percent against the dollar. And the world’s focus quickly turned back to the European sovereign debt crisis.

Since then, the euro has experienced another sharp bounce. But the multi-year downtrend is still well intact, projecting parity versus the dollar — perhaps as early as this year!

Chart #4:
Euro’s 22-week run

My analysis then: For more on the euro, consider this: The euro is in the midst of its strongest 22-week run on record, surpassing its prior record surge in 2003 — both areas are noted in the chart below.

Chart

What’s notable here is that in 2003, a 9 percent correction abruptly followed this strong climb. From current levels in the euro, a similar correction would mean a move down to 1.30 over the next few months.

Here’s what happened: The euro didn’t tumble 9 percent … it tumbled almost 10 percent! In just 17 short days in November, the euro fell from over 1.42 to just below 1.30. And it traded as low as 1.2872 against the dollar two months later.

Chart #5:
Pound still weak

My analysis then: Despite all of the fuss over the weak dollar, the British pound is still trading nearly 25 percent weaker against the dollar since the onset of the financial crisis three years ago.

Chart

And in the chart above, you can see that while the dollar and the euro are bumping into critical long-term technical areas, so is the pound.

Here’s what happened: The pound also topped out right around the date the Fed formally introduced QE2. And it fell nearly 6 percent in the months following. It still remains 23 percent off of its 2007 highs and is still entrenched in the long-term downtrend (defined by the declining white trendline).

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Chart #6:
Yen near all-time highs

My analysis then: Now, for the Japanese yen, the other remaining major currency in the world …

This long-term chart in dollar/yen going back 40-years since the failure of the Bretton Woods system, shows its steady decline.

Even given its recent intervention the pair is nearing all-time lows (lows in the dollar, highs in the yen). From this chart, compared to the charts of the euro and the pound, you can see the lion’s share of dollar weakness over the past few years has come from the surging yen.

Chart

And now as this dollar/yen exchange rate nears all-time lows, the Bank of Japan is rolling out its most aggressive deflation-fighting act yet: With more QE, more fiscal policy and a cut in what’s left of its interest rate.

Plus, the Bank of Japan is officially in intervention mode — all things that make a case for a bounce in dollar/yen.

Here’s what happened: The dollar/yen relationship marked a 15-year bottom in the days surrounding the Fed’s QE2 announcement. Since then the dollar has staged a 5 percent run against the yen and continues to hold a stronger position.

Finally …

Chart #7:
Battle against the yuan

My analysis then: With the Fed’s QE2 policy officially on the table, the emerging market and Asian countries that have been waging a fight to keep their currencies from a runaway surge have already stepped up with more currency market intervention and talks of capital controls.

Chart

And they are doing so because the dollar is weakening. But more importantly they’re reacting because the Chinese yuan is getting weaker relative to their currencies in the process — a competitive disadvantage for their export trade.

Here’s what happened: Many of these countries have continued aggressive action to limit strength in their currencies. Meanwhile, the Chinese have continued to show resistance to any meaningful appreciation in the yuan — a dynamic I expect will continue, despite all of the expert predictions of a big one-off revaluation in the yuan to come.

To sum it up: The Fed’s decision to embark on another quantitative easing campaign dominated the world’s global markets for months in the third quarter of 2010. And most market chatter was squarely surrounding a doomsday scenario for the dollar. But it hasn’t played out that way.

My point in that November 6 column was this:

“A grossly weaker dollar is not an economically or politically acceptable proposition for the world. And trouble for the world economy represents trouble for the U.S. economy.

“So, despite all of the bold projections of a continued rout in the dollar, these seven charts suggest the exact opposite outcome could be around the corner.”

What’s the key takeaway today? All of this analysis still holds.

Regards,

Bryan

P.S. I see a lot of volatility ahead for all major currencies, including the dollar, euro, pound, yen and yuan. And that volatility can mean boatloads of profits for my World Currency Trader members. To see how you can join them, click here to view my latest presentation.

Read more here:
Seven Charts from Last November … You Must See!

Commodities, ETF, Mutual Fund, Uncategorized

Daily Charting Silver and Gold SLV GLD at New Highs

February 28th, 2011

With QE2, Libya/riot concerns, and the prevailing up-trends all helping push leading precious metals funds GLD (Gold ETF) and SLV (Silver ETF) to their upper resistance breaking point, let’s take a look at the current daily chart structure, note key levels to watch, and see what the charts say at the moment.

First, let’s start with the leader – Silver (SLV):

Compare the two charts and – if you haven’t been paying attention – you’ll be surprised at the clear outperformance of Silver over Gold.

We’re bombarded with commercials on TV telling us that “NOW is the time to buy gold” but perhaps they should shift their focus to silver!

Joking aside, the Silver ETF – and Silver prices – just bounded out to new recovery highs this morning.  As I write this, Silver futures are trading just shy of the $34 level and as you can see, the SLV ETF is flirting with $33 per share.

A look back at the chart shows the rally began in earnest after the Jackson Hole Bernanke speech on August 27th (refer to my prior post on the inflation since this period).

A Three-Push bearish pattern formed – complete with negative divergence – going into 2011 which gave-way to a breakdown of the 20 EMA (a ‘protect profits’ sell signal) and then an “ABC” three-step decline that took price under the rising 50d EMA and back to the simple target price support at $26.00.

Bulls stepped in here and silver rallied almost non-stop through February to the recent new-recovery peak.

Simple methods often are more effective than complex methods, so watch the $30 per share breakout level as the key defining level between bulls (above) and bears/cautious (under).

Like we’ll see in gold, volume and momentum increased on the February rally – a bullish sign.

Now let’s turn to the ‘lesser’ performing metal – Gold via GLD:

Gold also began its rally after the August 27th Jackson Hole “We will do anything to stimulate the economy” speech and gold formed a similar “Three Push” bear pattern which also took it under the 20d then 50d EMAs.

Gold actually pierced the $129 prior price support level to bottom in late January at $128 before buyers again stepped in and the situations from Egypt and Libya helped spur higher prices in gold in part due to a protection/uncertainty trade.

Unlike Silver, Gold has yet to make a new recovery high though it stands close to doing so.

As such, watch the $138 resistance and the prior price peaks at the $139.50 level.

Traders will likely capitalize on a breakthrough to new highs in gold, particularly above $140 in the ETF and $1,430 in the futures contract.

It’s generally unwise to play “Pick a Top” in moves as powerful as these, unless we see breakdown signals like we saw in January – and as the chart shows, those breakdown signals only were good for a quick move to lower support only – not a reversal.

Keep watching these levels closely as traders push prices around at these key inflection points.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
Daily Charting Silver and Gold SLV GLD at New Highs

ETF, Uncategorized

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