Trade ideas, analysis and low risk set ups for commodities, crude oil, natural gas, gold, silver, coffee, the indexes, options and your retirement. We'll help you keep your emotions out of your trading.
Crude oil posted an inside day with a higher close on Friday as it consolidated some of this week's decline. The mid range close sets the stage for a steady opening on Monday. Stochastics and the RSI are oversold, diverging and are turning neutral to bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 97.85 are needed to confirm that a short term low has been posted. If August extends this month's decline, the 50% retracement level of the 2009-2011 rally crossing at 86.32 is the next downside target. First resistance is the 10 day moving average crossing at 94.70. Second resistance is the 20 day moving average crossing at 97.85. First support is Thursday's low crossing at 89.69. Second support is the 50% retracement level of the 2009-2011 rally crossing at 86.32.
Natural gas closed higher due to short covering on Friday as it consolidated some of this month's decline. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If August extends the decline off this month's high, the 87% retracement level of the March-June rally crossing at 4.119 is the next downside target. Closes above the 20 day moving average crossing at 4.593 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 4.430. Second resistance is the 20 day moving average crossing at 4.593. First support is Thursday's low crossing at 4.186. Second support is the 87% retracement level of the March-June rally crossing at 4.119.
Gold closed sharply lower for the second day in a row on Friday as it extended yesterday's breakout below this year's uptrend line crossing near 1529.80. The low range close sets the stage for a steady to lower opening on Monday. Stochastics and the RSI are diverging and are turning bearish signaling that sideways to lower prices are possible near term. Today's close below the reaction low crossing at 1511.40 confirms a top has been posted and trend change has taken place. Closes above the 20 day moving average crossing at 1534.60 would temper the near term bearish outlook. First resistance is the 10 day moving average crossing at 1529.80. Second resistance is the 20 day moving average crossing at 1534.60. First support is today's low crossing at 1498.50. Second support is the 38% retracement level of this year's rally crossing at 1477.10.
Crude prices plummeted to a four month low Thursday after the International Energy Agency (IEA) said it would release an emergency oil supply to alleviate high prices.
In an attempt to offset the supply disruption caused by Libya's civil war, the IEA said it will release 60 million barrels of oil over a 30 day period. Its members will release 2 million barrels of oil per day (bpd). Half of the amount will be provided by the U.S. Strategic Petroleum Reserve, which currently stores 727 million barrels of crude.
The IEA last tapped emergency resources in September 2005 after Hurricane Katrina disrupted production on the U.S. Gulf Coast.
Light, sweet crude lost $4.39 Thursday, settling at $91.02 a barrel. Prices traded as low as $89.69 and peaked at $94.47. Meanwhile, Brent crude ended Thursday's session at $107.26 a barrel, down $6.95. Goldman Sachs claims IEA's surprise release could cause Brent prices to decrease by $10-$12 a barrel by the end of July.
Likewise, natural gas for July delivery settled lower at $4.193 per thousand cubic feet. The drop came on government reports showing an increase in U.S. inventories. The U.S. Energy Information Administration (EIA) said stockpiles grew by 98 billion cubic feet last week. This marks the year's second largest increase in U.S. natural gas inventories.
The intraday range for natural gas was $4.15 to $4.34 Thursday. Front month gasoline futures settled down 13.57 cents at $2.84 a gallon. Prices fluctuated between $2.785 and $2.955 a gallon.
Yesterday it was Greece, today it’s Ben Bernanke and the FED. What is really going on with the equity market is that no one has strong feelings either on the upside or downside . This neutrality is reflected in our +55 reading indicating that the market remains in a trading range. Today we want to do something a little bit different, I am going to go through each of the markets quickly, and then zoom in and focus on two markets crude oil and silver. I think you’ll find our analysis quite interesting and informative.
Now let’s take a look at what’s happening in the markets....
S&P 500: +65. The market action continues to reflect a trading range. Major downside support is at $1,250. Upside resistance begins at $1,300.
Silver: +75. We talk about this market in more detail in the video, so tune in!
Gold: +100. All systems are go for gold but the market appears to be going up grudgingly. The weekly Donchian channel has resistance at $1,575 today. Major support at $1,513.
Crude Oil: -75. We also cover this with more detail in today’s video.
The Dollar Index: -80. Our indicators are still negative longer-term for the dollar. Minor support at $74.00. Major support at $73.00. Look for a test of the lower line of the Donchian channel which comes in at $73.54.
The Thomson Reuters/Jefferies CRB Commodity Index: +55. We are at the lower range of the Donchian channel and the market is oversold. We would not rule out some sort of bounce from current levels. Market remains in a broad trading range.
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All eyes are on Greece as the vote will be taken this afternoon at five o’clock Eastern standard Time. That is a vote of confidence on the last 30 measures and also on the government. As you know, the market has been in an oversold condition and I think today’s rally was reflective of that move from an oversold condition.
Crucial 5 PM Vote comes in when the markets are closed. If there is a vote that is negative then these markets will come crashing down tomorrow. This is just like gambling in that no one knows what’s going to happen with the Greek government. My own view is if they do agree on what they’re doing it will just be kicking the can down the road.
Now let’s take a look at the markets.....
S&P 500: +55. The market action continues to reflect a trading range. Yesterday we mentioned that this market was at the lower range of the channel and expected amounts. Today is that bounce. Major downside support is at $1,250.
Silver: +55. This market continues to contract and it does look like it is getting ready for a move one way or the other. We would wait for our trade triangles to kick in to give us that direction. Market is oversold and expect to see a bounce from current levels. Near term resistance at $39.00. Support at $34.00.
Gold: +100. All systems are go for gold and we expect this market to do better. The Donchian channel has resistance at $1,353 today. Major support at $1,513.
Crude Oil: -100. Today’s action in crude oil is very negative. The trend in crude oil is clearly down with all of our Trade Triangles in a negative position. The market did bounce as we expected from the lower levels of the Donchian channel. Look for more two way action in this market.
The Dollar Index: -80. Our indicators are still negative longer term for the dollar. Minor support at $74.00. Major support at $73.00. Look for a test of the lower line of the Donchian channel which comes in at $73.54.
The Thomson Reuters/Jefferies CRB Commodity Index: +55. We are at the lower end of the Donchian channel and the market is oversold. We would not rule out some sort of bounce from current levels. Market still appears to be in a broad trading range.
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The big news over the weekend was Greece and the 17 nations were unable to come to an agreement to put together a package for that beleaguered country. This agreement has been pushed off yet again until July. Markets both here and Europe initially reacted in a negative fashion but have come back and appear to be regrouping and rethinking the implications of this delay.
The bank stocks however still look sick and the trends are clearly down in this sector.
The Shanghai and Hong Kong indexes are also looking very negative as are most equity indexes around the world. The only index that is looking positive using our trade triangle technology is the Malaysian index.
Let’s take a look at the major markets now.....
S&P 500: -60. The market action continues to reflect a trading range. The market is at the lower end of the Donchian channel and is oversold so we may see a rally to resistance around $1,300. Major downside support is at $1,250.
Silver: +55. I would watch this market very carefully as I feel that it is probably at the lower end of its range. We would use the Donchian channel as support. We may bounce around for another couple of weeks but come July I think we’ll see this market on the move. Market is oversold and expect to see a bounce from current levels. Near term resistance at $36.00. Support at $34.00.
Gold: +90. All systems are go for gold and we expect this market to do better. The Donchian channel has resistance at $1,353 today. Major support at $1,513.
Crude Oil: -90. The trend in crude oil is clearly down with all of our Trade Triangles in a negative position. The market is however heavily oversold and at the lower end of the Donchian channel. We would expect to see a bounce from current levels but would like to see more positive action.
The Dollar Index: -65. Our indicators are still negative longer term for the dollar. Minor support at $74.00. Major support at $73.00. Big resistance at $76.00.
The Thomson Reuters/Jefferies CRB Commodity Index: -70. We are at the lower end of the Donchian channel and the market is oversold. We would not rule out some sort of bounce from current levels. Market still appears to be in a broad trading range.
Since the first trading session in May we have seen the stock market sell off. The old saying “sell in May and go away” was dead on again this year. Here we are 7 weeks later with the stock market continuing to lose ground. This extended sell off has everyone all worked up that this is the beginning of another market collapse.
Let’s take a quick look at the SP500 hourly chart covering the month of June.
As you can see, price is still falling but every couple of trading sessions we get some big money players nibbling on stocks accumulating shares and running the market higher. This type of price action is typically an early signal that the market is trying to bottom.
There are two key ingredients for a higher stock market and both have been missing from the mix for a couple months. The two key sectors which have a significant weighting in terms of the broader market are the financial and technology stocks.
Let’s take a look at the financial sector:
As you can see on the bottom of this chart, financials started to lag the market in late January. Ever since then this sector has been in a strong downtrend pulling the broad market averages lower with it. The good news is that this sector has just reached a major support zone and is looking ripe for a bounce and possible rally.
The other main ingredient to a higher stock market is the technology sector.
Looking at the technology sector:
Here we can see technology stocks have been pulling back for several weeks. Tech stocks are now trading down at a major support zone and they look oversold. A bounce from this level is very likely in the coming week.
Weekend Trading Conclusion:
In short, I continue to feel the market is trying to bottom here and we are at the tipping point when things get volatile and choppy just before we get a trend reversal in the S&P 500. Keep an eye on the short term charts of financials and technology sectors. Once they start making higher highs and higher lows on the 60 minute charts I believe it will be the start of a nice bounce and possible rally.
I guess the most common expression I'm hearing is "kick the can down the road". It would seem as though politicians the world over are pretty much the same. None of them wants to face the truth that there is no more money. So what do they do they, "kick the can down the road".
And once again the taxpayers have to come up with the money. Lending more money to Greece is the height of insanity in my opinion simply because How can they possibly pay back the first tranches of money that was already has been lent to them? But that's what's happened today Merkle and Sarkozy made concessions and basically declared that "happy days are here again" are they really? I was talking to a good friend of mine this morning who is one of the smartest people I know and I asked him point blank, what do you think of the global and US economy? Here is what he said to me. "It is a time to be cautious and guarded" they were his exact words. I'll let you think about that.
So what can we as investors do to protect ourselves and hopefully profit in uncertain times? Well, for starters we need to understand the market conditions we are in the best we can. Second we need to identify where the money is still moving and in which direction. Adam Hewison has put together a great free video summing up the current conditions and trends of the major markets. The video is brief, to the point and very actionable...best of all its free. Click here to take a look.
The past week was characterized by passing of the earlier week’s heat wave. The Henry Hub price decreased 31 cents per million Btu (MMBtu) for the week (6.4 percent) to close at $4.52 per MMBtu on June 15.
During the midst of the heat wave, working natural gas in storage last week rose to 2,256 billion cubic feet (Bcf) as of Friday, June 10, according to the U.S. Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report (WNGSR). The implied increase for the week was 69 Bcf, leaving storage volumes positioned 275 Bcf below year-ago levels.
At the New York Mercantile Exchange (NYMEX), the July 2011 natural gas contract price lost every day of the week, closing at $4.577 per MMBtu on Wednesday.
The natural gas rotary rig count, as reported June 10 by Baker Hughes Incorporated, fell by 8 to 879 active units, continuing the trend of recent weeks. Meanwhile, oil-directed rigs were up 10 to 969, maintaining the disparity between the two drilling strategies.
Crude oil for July delivery plunged Wednesday as fears of an escalating debt crisis in Greece contributed to a stronger dollar.
Oil lost $4.56 to settle at $94.81 after the dollar index, a gauge of the greenback's value against other major currencies, increased by 1.5 percent Wednesday. The euro lost 2.1 percent against the dollar, weighed down by Greek government officials' scrambling to gain support for austerity measures. The government must agree to such measures to address the country's debt crisis in order to qualify for a bailout from the European Union and International Monetary Fund.
Providing a softer landing for oil was a U.S. Energy Information Administration report showing a larger than expected decline in crude oil stocks last week. According to the EIA, total oil inventories decreased by 3.4 million barrels to 365.6 million barrels as of June 10. Analysts surveyed by Platts, meanwhile, had projected a 1.9 million barrel draw.
Front-month crude traded within a range from $94.01 to $99.95 Wednesday.
July natural gas remained flat during midweek trading, ending the day at $4.58 per thousand cubic feet. Milder than normal temperatures throughout the Upper Midwest and Northeast are curbing demand for natural gas to generate electricity for cooling in these regions.
Natural gas peaked at $4.605 and bottomed out at $4.52 Wednesday.
The gasoline futures price lost 15 cents to settle at $2.92 a gallon. During Wednesday's session, July gasoline fluctuated from $2.91 to $3.07.
Here's a brief summary of what's in today's video and what's happening right now in the major markets:
- SP 500: -70. The market action today can only be described as negative. A score is now -70 and our downside target for this market is 1250. Major downside support is at 1250.
- Silver: -70. I would watch this market very carefully today as I feel that it is probably at the lower end of its range. We would use the Donchian Channels along with the fact that this market is oversold and expect to see a bounce from current levels. Major Support at 34.00.
- Gold: +70. Gold is currently oversold and we expect to see this market balance sometime in the near future. We would not be surprised to see further sideways action but we want to be long this market as the Donchian channel comes in at 1503. Major support at 1,500.
- Crude Oil: +55 Trading range. This market continues to pound out a base to go higher. Long term indicator remains positive. Support coming into this market at $96/barrel. This market is currently oversold and choppy.
- The Dollar Index: -55. Despite today's strong dollar rally in the index, the longer term and mid-term Trade Triangles remain negative. Resistance now at 76.50. The dollar index is now in overbought territory. Minor support at 73.50 and major support at 73.00.
- Reuters/Jefferies CRB Commodity Index: +55. This index is now beginning to reach an oversold condition and we may see further backing and filling-in softness. Near-term resistance at 350.00. Minor support at 340. Major support at 335.00. Trading range.
The big question is are we going to close lower seven weeks in a row in the major indexes. Many people trading the markets now have not seen the classic bear market which does not give you a chance to get out. Several of our major long-term indicators are close to turning negative and when they do we would recommend moving into an all cash position for hitting any portfolio you might have in stocks.
Do you have a plan for trading summer 2011? Are you sticking to the usual "sell in May and go away"? Today Chris Vermeulen of The Gold and Oil Guy.Com gives us plan for trading the summer of 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.
The buzz around the blogosphere and in the media is that Quantitative Easing II is scheduled to end in around 3 weeks. Already pundits are asking about Quantitative Easing III as a matter of when, not if. In reality a QE III Lite version is already in the cards as the Federal Reserve has stated they will be buying Treasuries and Mortgage Backed Securities (MBS) with maturing issues. The Fed also plans on reinvesting the interest earned from the existing portfolio (Roughly $15 billion/monthly).
When it comes to the application of financial principles, doing the opposite of what everyone else does generally leads to an extreme variation in the overall results. While the results are not always better, they are at the very least significantly different from what most lemmings within the group experience. In every aspect of my financial life I try to do the opposite of what the herd is doing. It takes experience and a significant level of discipline, but buying from the herd when they are selling and being willing to sell into a crowd when they are buying is a great way to trade. It sounds easy, but for most people it is not, myself included.
Right now financial markets are uncertain. I would be remiss if I did not point out the recent strength in the U.S. Dollar Index and the potential higher low that it has carved out on the daily and weekly charts. The weekly chart of the U.S. Dollar Index is shown below:
The current pattern on the U.S. Dollar Weekly chart is bullish. We could see the U.S. Dollar Index trade significantly higher from here as it has been under severe selling pressure for an extended period of time. While I believe technical analysis is just one context through which to view financial markets, it is uncanny how often market cycles and headline events line up. Is it merely a coincidence that the U.S. Dollar is potentially bottoming around the same time the Federal Reserve is ending the QE II asset purchase program?
Regardless of what camp economists are in, we presently live in a strange time for financial markets and capitalism in general. One of the more interesting charts to study is the Euro currency, which in contrast to the U.S. Dollar Index appears to have a more bearish pattern. Could it be that the U.S. Dollar is setting up to rally because of the perceived weakness of the Eurozone? The daily chart of the Euro ETF is shown below:
The Dollar may be firming up here based on the Euro’s weakness and it may have absolutely nothing to do with QE II ending. I always refer to price action and never question Mr. Market’s directional bias. If the U.S. Dollar begins to work higher what impact will it have on equities?
A stronger U.S. Dollar would certainly put pressure on risk assets, specifically equity and commodity prices. As it turns out, we are at an interesting juncture in financial markets at this point in time.
The 4 year stock market cycle is nearing an end, a presidential election will take place in less than 18 months, the U.S. government has a massive debt crisis developing, and the European debt crisis continues to mature in what will likely be a microcosm of what we will face here in the United States. The Middle East remains tense at the very least and the recent OPEC announcement to maintain supply levels has helped support oil prices.
Higher oil prices have obviously slowed down the U.S. economy as the consumer is strapped with higher costs on nearly everything, specifically food and energy. In addition, the unemployment numbers are seemingly not improving and housing appears to be rolling over . . . again.
Almost everywhere we look the news is bleak. Mr. Market has shrugged off bad news time and time again since the March 2009 lows. The long term shorts remain frustrated to say the least and those who were actively shorting along the way have likely been stopped out multiple times. Everywhere I look market commentary is bearish and pundits are talking about additional weakness as they point to a rallying Dollar and multiple economic headwinds facing domestic markets.
Traders and investors should be focused on a few specific price levels on the S&P 500. With the Dollar rallying, the S&P 500 index has remained under extreme selling pressure for multiple weeks. The S&P 500 (SPX) is likely going to test its 200 period moving average. From there I am expecting a bounce higher, although the bounce may be nothing more than a Dead Cat Bounce.
As always, time and price will be the final arbiter but if the Dollar continues to trade higher we could see the S&P 500 lose its 200 period moving average and eventually test a major support level which needs to hold up for the bulls. If the March 16, 2011 pivot lows are taken out to the downside, the next leg of the secular bear market may be under way. The daily chart of the SPX illustrated below shows the key price levels and the potential price action that may lead up to a key test of the March 2011 pivot lows:
Very rarely does the first mouse get the cheese, so I would anticipate a bounce off of the 200 period moving average which currently coincides with the March pivot lows. With not only the pivot lows but the 200 period moving average offering support a breakdown lower will be a large tell about the health and future price action of the S&P 500.
Right now I am just going to focus on how the S&P 500 handles the key support zone illustrated above. The forthcoming price action will tell traders everything we need to know about the health of financial markets. I have no idea if we are about to enter a double dip recession nor do I know whether price action will even test the March pivot lows.
What I do know is that price action in coming days around key support areas is going to be critical. I am convinced that Mr. Market will tell us whether the bullish party will continue or come to an end in the next few weeks/months. A breakdown of the March pivot lows in the future will likely initiate the launch sequence for the next secular bear market. I would keep the S&P 500 1,250 price level on the radar going forward. Risk remains high.
If you would like to receive J.W. Jones emails several times per week on SP 500, Volatility Index, Gold, and Silver intermediate direction and option trade alerts… take a look at Options Trading Signals.com today for a 24 hour 66% off coupon, and/or sign up for his occasional free updates.
David Banister has been a Gold Bull since November 2001 based on Elliott Wave patterns and currency concerns as well. Since that period nearly ten years ago, he has followed and forecasted the patterns in gold and has been amazed at the clearly definable trends both for large moves to the upside as well as corrective patterns. Here is what David is saying he sees happening to gold.......
Most recently we had the last pivot bottom in January at 1310 areas, which I labeled as a “Wave 4 bottom” with regards to the most recent 5 wave pattern to the upside. In the longer term view, Gold has been in a long uptrend since the October 2008 crash lows of $681 an ounce, and I have it now in the final 5th wave up of a larger degree 5 wave move since that time. Nearly 32 months of general uptrend with the occasional corrective pattern to the downside to kick the bulls off.
The issue now though, is that 5th waves in a final 5th wave pattern are very difficult to predict and they can extend and run higher than usual, or they can “truncate”, which means they are shortened much more than usual. In the near term, gold investors want to see Gold break out over $1551 in order to avoid what looks like a potential “truncated” top in Gold at that level. What happens is the Bulls run out of gas, and the final 5th wave up gets tired and stops short of the normal destination, catching both bulls and bears off guard at the same time.
Below is a graphic of what this would look like in the current Gold Bull Market with the recent top at 1577 as wave 3, and the 1551 area as a truncated wave 5 top:
I recently wrote about this for my paying subscribers at TMTF in order to make sure they are “prepared like a Boy Scout” for a possible large correction. The other view I have had for a while is that we would surpass the 1577 highs and run up to a minimum of 1627 for the top of this 5th wave, with potential to run another $40-$70 higher in a throw over top pattern. The bottom line though is you need to be prepared for a coming top in Gold, which will be followed by a multi-month correction that most will not see coming. As it stands now, I can’t find too many Bears on Gold anywhere on the planet…and that is typical of 5 wave tops.
If you would like to be kept abreast of intermediate Gold pattern forecasts, (As well as SP 500 and Silver) take a look at Market Trend Forecast.com today and get a 33% coupon discount to subscribe good for 24 hours. Or, you can sign up for the occasional free reports as well.
During the past 4 months we have seen the financial sector (banks) under selling pressure. With real estate prices continuing to fall and foreclosures picking up speed again investors have not been that interested in holding bank stocks. And we all know that without the financial sector moving higher we cannot expect the broad market to make any significant moves higher either.
If you take a look at the financial sector ETF XLF you will notice that it’s now trading near a major support level (fair value) where most shares changed hands in the past. With this sector sliding 13% from the highs in February and the fact that it’s making a parabolic drop into a support zone I can’t help but think a bounce is very likely to form soon.
XLF Financial Sector ETF – Daily Chart
SP500 Futures – 10 Minute Chart
With the financial sector nearing major support and the SP500 staring to show signs of a bottom forming I will admit my heart is starting to pound in excitement for an entry point. I am really hoping that this week we see another sharp drop in the stocks which should spikes the volatility index up (VIX) to 21 or higher. If we can see this take place, then I will be taking a long position to catch a 2-15 days bounce in the broad market.
The chart of the past 10 trading sessions below shows a price and volume pattern which typically leads market bottoms. I’m keeping a close eye on things these days…...
Silver 2 Hour Chart
Silver took a big hair cut last month falling from $50 down to $33 per ounce. Ever since then it has been trying to form a base which will act as the next launch pad for higher prices. So far it is looking good but there is a key resistance level to breakthrough before fireworks. Keep your eye on the silver bullet.
Gold 2 Hour Chart
Gold is back trading up near its high but is starting to struggle with resistance (sellers). We could easily see gold pullback to the $1520 area before taking another run at resistance.
Mid-Week Update Conclusion:
In short, I feel investors are getting very nervous because of the 6 week sell off in stocks. There have been some technical support levels broken on the SP500 and other indexes and its these broken levels which have investors running for the door. The thing is, this type of selling happens every year and generally 2 -3 times. During a bull market I like to see fear in the eyes of investors. Until we are proven wrong about buying extreme oversold dips, they continue to be my focus.
Also if the financial sector can find a bottom and start to rally, then we will see higher stock prices across the board in the coming weeks. I am currently neutral on metals, oil and the dollar. But am getting bullish on financials and the SP500 as they move lower.
Today, I decided to do a video to show you how you can protect your capital using something other than gold. In this new, never before seen, 7 minute video, you will see exactly what we're looking at and how you can protect your nest egg very easily using tools that you may or may not be familiar with.
It would seem as though the financial markets, particularly certain financial stocks, are incredibly vulnerable. The erratic recovery we saw from the lows in March of 2009 maybe in jeopardy. In fact, with many financial stocks making new lows for the year, it does not augur well for the future.
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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…
In addition, everyone was talking about the saying “sell in May and go away”. Take a look at the chart of the SP500. The first session in May was the highest point and the SP500 has only gone down since then. The chart below shows my fear indicator and with the masses all selling in the month of May I have to think it’s getting ready to bottom and start another 5-6% rally from down here. Keep in mind I am more neutral on the overall market for the longer term. In the next month or two I figure we see higher prices from here but come August we could see the dollar bottom and stocks sell off in a more significant manner.
Last but not least, gold and silver…
Looking back in time and reviewing inter-market relationships with gold and silver I feel more and more investors are becoming bearish and moving their money into safe havens like gold and silver. Recently we saw a sharp pullback in both gold and silver. The price and volume action that took place was a clear sign of distribution selling meaning big money players taking money out of those investments. I see this pattern happen in stocks, indexes and commodities all the time and it generally warrants caution!
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Typically we will see a few more new highs being reached which are quickly followed with strong selling. What happens is that the big money players allow the price to make a new high and that hits the headline news, CNBC, BNN etc…. drawing in new buyers and a surge of volume for the big money guys to sell into and exit their positions at the top. It also helps cover up their large volume selling.
Below is what I am thinking will take place in gold this summer.
Weekend Trend Conclusion:
In short, I feel the dollar will continue to slide lower, both stocks and commodities should have some strength over the next 1-2 months but after that all bets are off and it will be time to re-evaluate things.
The next week in the market will most likely make or break this outlook as the overall market is trading at a tipping point. Let’s see how this week pans out then take another look at the charts.
From the desk of John Thomas The Mad Hedge Fund Trader Friday, June 03, 2011
I am going to use the huge spike down in oil prices this morning triggered by a disastrous May nonfarm payroll report to take profits on my short position in the oil ETF (USO). Specifically, I am selling my August $37 puts at $1.60, the price I am seeing my screen. The (USO) itself is now trading at $38.90.
I initially bought these puts on May 16 for $1.55, when oil was at $100.50. Within days, crude fell to $95.50, boosting the puts to over $2.00, and I should have taken profits there. But I didn’t.
Crude then rebounded to $103, knocking the puts back down to $1.00. This morning, crude is back down to $98.25, a dip of $2.50 since I started this trade, and the puts are essentially unchanged, the profit entirely eaten up by time decay.
That is the lesson with trading these out of the money options. You have to grab the profits when you can before they go up in smoke. The August options only have 2 ½ months left in them, and time decay is starting to accelerate.
For the notional $100,000 portfolio with a 5% weighting, I am booking a profit of $160 (32 X $.05 X 100). This amounts to a 3.2% profit on the position, which adds 3 basis points to your annual return. I’ll be using the next serious rally in oil to reestablish my short, given the dismal economic prospects we are now facing.