Thursday, December 13, 2012

Mid week trades to focus on .... SPX, U.S. Dollar and Natural Gas

Yesterday’s price action was very bearish yet again and we are patiently waiting for a counter trend pullback to happen. While three are some good looking plays out there I really do not want to get long until the market clears the air with a bout or three of strong selling. Remember 3:4 stocks follow the market and the odds of picking a commodity or ETF that bucks the trend is unlikely.

SP500 / Broad Stock Market

We have seen a bug run up in stocks this month and things are looking a little long in the teeth. A large number of stocks are trading above their upper Bollinger band and the broad market is testing that key resistance level also. Typically when a Bollinger band is reached we see price reverse for a couple days at minimum.

While the equities market is in a new uptrend as seen by the moving averages I pullback seems imminient. The last two days has formed reversal candles and are pointing to lower prices.

Dec12SPY

Dollar Index Hourly Chart

This chart shows a possible bottom forming in the dollar pointing to a 3-8 day pullback in stocks.

Dec13DXBottom

Gold Futures Hourly Chart

Dec13Metals

Natural Gas Hourly Chart

Dec13NatGas

Morning Trading Conclusion

Looking at the charts on several different time frames, not all shown here, technical analysis shows a pullback in stocks is highly likely. This is what we are currently positioned for.

The US dollars downward momentum is slowing and if it can find a bid today it should trigger strong selling in both stocks and commodities. Gold and silver are down sharply along with miners.

We have been watching natural gas for a few months and know that it has been trading inverse to what stocks do. This bodes well for a bounce in natural gas if stocks start a sell off. That being said, natural gas is trading at a key tipping point that could spark a very fast and hard drop. This knife can fall at a speed that will take a slice out of your trading account if not traded and managed properly (tiny position and use of a stop). I actually like natural gas the more it moves down and could issue a buy alert on it today or this week. I would like to see volume decline at this level showing the momentum is slowing......

Chris Vermeulen

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