The Next Major Move in Precious Metals Is Close

What the GLD ETF Chart tells us about GOLD

After making new highs about a year ago we have seen Silver and Gold consolidate for roughly the last twelve months. Technically, it would typically be a bullish scenario with gold from the stand point that the last 12 months’ price action was a sideways consolidation in a bullish pennant formation. However over the last year we have witnessed a series of lower highs and increasingly tested supports levels around $150 on GLD which raises caution.

With the fed pulling any extensions on further quantitative easing in the form of QE3 or other programs, the bullish case has lately been criticised. However I am still a firm believer that gold in most respects is a currency, and the only one that can maintain its value. There are very serious issues looming in Europe and across the world that are far from resolution. With few tools left in the toolbox to stimulate world economies, further easing can never be ruled out.

Silver, after breaking through strong resistance around $19- $20 in September 2011 went almost parabolic in spring 2011 prior to giving up most of its gains in the last year. There seems to be significant support around $26 on SLV, however this level has been tested quite frequently over recent months and this again raises caution. While silver owes some of its moves to its industrial application, the high correlation between the two metals is not to be ignored.

I think the long term trade will be long in both metals, but I’m waiting to see a significant breakout out of these consolidations on heavy volume to confirm a direction. I would like to see both precious metals break out of their respective consolidations and ultimately have further confirmation in the USD. Any major headlines over the next couple months involving Europe or quantitative easing may provide us with the trigger for the next big move.

Get My FREE gold cycles and trading analysis here at  The Gold & Oil Guy.com

Chris Vermeulen

Make sure to also read "Gold Cycles Will Soon Forecast Where Prices Are Headed"

The Dollar & Gold Have Eyes on Europe

Friday saw heavy selling pressure coming into risk assets, specifically equities and oil. However, the real driving force behind the selling pressure is likely the result of several unrelated economic/geopolitical events. Clearly the unemployment report had an impact on price action, but strangely enough it would appear to those more in tune with reality that market participants want lower prices so that the next quantitative easing program can be initiated.

Another key development in equities price action as of late has been selling pressure in Apple (AAPL). A few weeks ago we witnessed a sharp downturn after prices surged higher into a blowoff top. Earnings came out and prices jumped again and we have watched Apple’s stock price drop considerably since.

Friday saw sellers circling the wagons pushing the tech behemoth down around 2.25% as of the scribbling of this article. When AAPL was rallying it helped the Nasdaq Composite and the S&P 500 grind higher. Now that it has clearly given up the bullish leadership role, it now appears to be a drag on the price action of domestic indices.

Additionally there was a mountain of economic data released out of Europe overnight which was entirely negative. Spain, Italy, France, Germany, and the Euro-area in general saw their Service PMI readings all come in below expectations. Europe is moving into a recession which whether economists want to acknowledge it or not has implications on domestic U.S. markets. The Eurozone as a whole is the largest economy in the world. Clearly the European economy is slowing, and our exports to Europe will slow as well.

This leads me to the final data point which is still unknown. What will the outcome of the French and Greek elections over the weekend mean for the Eurozone’s geopolitical ties as well as the potential impact on the Euro currency itself?

The answer to that question will likely not be known until late Sunday evening; however by the time U.S. markets open this coming Monday the cat(s) will be out of the bag. This final question leads me to the real topic of this article. The question I want to know is what impact these elections could have on the value of the U.S. Dollar Index as well as gold?

As an option trader, I am always focused on the volatility index (VIX) as well as implied volatility on a number of underlying assets. I came across the following chart courtesy of Bloomberg which appeared in an article posted on zerohedge.com. The chart below illustrates the differential between European Union equities’ implied volatility levels and the EUR/USD currency pair.

Chart Courtesy of Bloomberg

It is rather obvious that EU stocks and the EUR/USD implied volatility levels have diverged. Generally speaking, when volatility increases it means that price action will typically move lower. The higher levels of volatility, the lower the price the underlying will move. There are exceptions to that rule such as earnings reports or key headlines which drive volatility higher, but generally speaking high volatility levels correlate with uncertainty and risk.

What is particularly troubling about the chart above is that the EUR/USD currency pair is seeing reduced implied volatility. This essentially means that the market is not expecting any major moves in the currency pair amid all of the poor economic numbers coming out of Europe.

For those not familiar, the EUR/USD currency pair reflects the value of the Euro against the Dollar. Thus, if the EUR/USD is rising, this means that the Euro is moving higher against the Dollar. The opposite is true when EUR/USD is selling off.

At present implied volatility levels are quite low by comparison to European equities. The zerohedge.com article entitled “Is EURUSD Volatility About to Explode?” shares the following statement to readers, “The last two times this has occurred (in the last year), EURUSD implied vol has rapidly caught up to equity’s risk.”

What that statement means is that it is becoming more likely that implied volatility of the EUR/USD currency pair is going to increase back in par with European stocks. If that takes place, which based on recent data is likely, the intraday volatility in the EUR/USD will increase thus intraday price ranges and sharp moves will become more prevalent.

The long story short is if implied volatility picks up in EUR/USD then it is likely going to be quite beneficial to the U.S. Dollar. The largest concern for Fed Chairman Ben Bernanke has to be the potential for a monstrous move higher in the U.S. Dollar should an unforeseen event arise in Europe. An event such as a disastrous auction or the discussion by German Parliament about leaving the Euro could both help push the Dollar much higher than anyone expects.

A higher Dollar is negative for risk assets and Mr. Bernanke does not like the word deflation at all. None of the central banks around the world like deflation because it means all of the debt they are holding and helping to prop up has a much more significant intrinsic value. If the Dollar is worth more, Dollar denominated debt is also more expensive to pay off.

The U.S. Dollar Index has languished for several weeks, but recently the greenback started to reverse higher and at this time has managed to push above major resistance levels overhead on the daily timeframe. The daily chart of the U.S. Dollar Index is shown below.

If the Dollar remains firm into the bell on Friday which appears likely, the results of the two key European elections over the weekend could provide the ammo needed to really force the U.S. Dollar higher or lower depending on market sentiment. It appears the Dollar wants to go higher currently, but a sharp reversal is not out of the question.

The key level to watch is the 80.76 price level on the U.S. Dollar Index futures. If that level gets taken out, the Dollar could extend to recent highs and beyond should the situation in Europe begin to unravel.

If the Dollar surges what will that mean for gold? Generally speaking most readers would expect gold and silver to move lower on Dollar strength. For a time, that would likely be true, but if a real currency crisis plays out gold and the Dollar might rally together as citizens would try to move their wealth into safe, liquid assets.

Under that type of scenario, gold and silver could both rally along with the Dollar. When the moment finally arrives where the Euro begins to selloff sharply, physical gold and silver will be tough to acquire in Europe.

In the short to intermediate term, gold will likely continue to drift lower searching for a critical bottom. The weekly chart of gold futures below demonstrates the key support and resistance levels that may have to be tested before a major reversal can play out.

Make no mistake, I remain a gold bull in the long term. However, in the short run the Dollar has the potential to outperform gold under the right circumstances. Ultimately it is important to recognize the distinction between selling pressure and what would likely happen in a full blown currency crisis in Europe which is possible, if not ultimately inevitable.

The price action over the weekend on Monday will likely be telling and we could see the beginning of a major move in a variety of underlying assets depending on the election results. Clearly times have changed when U.S. market participants are concerned about what is going on in Europe more so than domestic issues. Unfortunately, we live in very strange times.

Looking for a Simple ONE Trade Per Week Trading Strategy?
If so, join today and start trading options today!

What To Expect in the Final Week Of February for Precious Metals, Gold Stocks & Dollar

This morning we are seeing the US Dollar index move higher retesting a short term breakdown resistance level. What this means is that the dollar fell below support and is not slowing drifting back up to test the breakdown level. As we all know once a support level is broken it then becomes resistance. So if that holds true with the current move in the dollar we should see stocks and commodities find a short term bottom and continue higher today or tomorrow from the looks of things.

Gold has been pulling back the past couple trading session on light volume which healthy price action. It has done the opposite of what the dollar did above. Gold broke through a key resistance level and is slowly drifting back down to test the breakout level to see if it is support. If so then gold should continue higher in the coming days.

Both silver and gold miner stocks are lagging the price of gold. They have yet to break through their key resistance levels. That being said it could happen an day now as they have both been flirting with that level for a couple trading sessions now.

Crude oil continues to hold up strong and is headed straight for its key resistance levels without any real pullback. Chasing price action like this is not something do often because risk reward is not in your favor. I am staying on the sidelines for oil until I see a setup that has more potential and less risk.

The equities market remains in a strong uptrend at this time. I do feel a 1-3 weeks pause/pullback could take place at any time but in the grand scheme of things we could be only half way through this runaway stock market rally as noted in the video.

The equities market is going to gap down this morning which is typical in a bull market. Remember. in an uptrend the stock market tends to gap lower at the open and close higher into the close. And it’s the opposite in a down trend with stocks gapping higher and sell off through the trading session.

Watch Chris Vermeulens detailed video analysis for this week at The Gold and Oil Guy Videos

Chris Vermeulen
The Gold and Oil Guy .Com

The Long Term Fundamental Case for Gold

A quick glance at most of the headlines over the weekend and the primary focus seemed to be either calling a near term top in domestic equity indices or a focus on the Greek debt situation. Why is anyone even paying attention to what is going on over there? Until the ISDA declares a default where the underlying Credit Default Swaps (CDS) are triggered, it is all just noise.

The ECB has broken the rule of law by placing itself as the senior creditor ahead of private creditors, the Greek government is trying to pass retroactive legislation to trap private sector creditors holding out of the PSI, and the leader of Greece was not even elected by the people of Greece – how much more manipulation and insanity do we need to monitor?

Similar to the price action since 2008, central banks around the world control everything from financial markets to the ascent of political leaders. These same political leaders help central bankers and planners control policy and decision making at the highest government levels in Europe and around the world. It would seem that the United States should change the motto from “We the People” to “We the Bankers.”

However, there is one particular asset class that even the central bankers have a hard time controlling. While they can impact short term price action through direct currency manipulation initiatives, in the longer-term gold is likely to move in only one direction, higher.

The price action on Tuesday reminded market participants that actions such as the Greek bailout come at a cost. Quantitative easing and/or printing money (depending on what one wishes to call the practice of producing fiat currency out of thin air) has a direct impact on the price of gold.

Many financial pundits argue that gold has no utility, but what they fail to recognize is that gold is the senior currency to all other fiat currencies. Silver is also a form of currency and is senior to all other fiat currencies as well. While one can draw the utility of gold into question, the idea that gold is the senior most currency to all other fiat currencies is not new.

The Constitution of the United States of America, which is over 200 years old, refers to gold and silver as forms of payment. Looking back thousands of years the Romans used gold coins as a form of currency. The idea that gold and silver are currencies is certainly not a grandiose thought or a stretch of historical concept. Trying to depict gold as a worthless asset depends on your view and consideration of fiat currency.

There are those that would argue that the Federal Reserve of the United States is not actively manipulating economic conditions domestically or abroad. For those that view gold as a poor investment or hedge against currency devaluation need to consider the charts illustrated below. The chart below was produced by Thomas Gresham of Gresham’s Law.

Total Asset Growth of the Federal Reserve System – 1915 – 2012

It is rather obvious by looking at this chart that the Federal Reserve has actively sought to enter domestic and foreign financial markets. The surge in balance sheet assets serves to prove how far the Federal Reserve Bank is willing to go to maintain markets which seemingly are only allowed to move higher over time.

This chart is bearish for nearly any form of paper backed assets. The above referenced chart is long term bearish for the Dollar and Treasuries and long term bullish for physical gold and silver. As the Federal Reserve continues to debase the U.S. Dollar in concert with other central banks’ monetary easing programs, gold and silver prices over time are destined to move higher in virtually every form of fiat currency.

During the same time frame that the Federal Reserve has seen its balance sheet grow exponentially, the rapid rise of M2 money supply is staggering. The long term chart of M2 is compared to gold futures in the charts presented below.

M2 Money Stock

Gold Futures Monthly Chart

It is rather obvious what has happened to the price of gold as the M2 money supply has grown. The idea that the Federal Reserve has not already destroyed a significant amount of the purchasing power of the Dollar can easily be refuted by the two charts shown above.

In the short term, gold and silver could suffer from a pullback, but in the intermediate to longer term it is unlikely that we have seen the highs of this bull market for either metal. As long as central banks around the world continue to print money and expand their balance sheets gold and silver will remain in a long term bull market. The daily chart of gold futures is presented below.

Gold Futures Daily Chart

As can be seen above, it is not out of the question that we could see gold pullback to test one of the key moving averages in coming days/weeks. However, I expect the key support area to hold in the event of a sharp selloff. Ultimately, I expect to see a breakout over the resistance zone in the days/weeks ahead. However, I would not be surprised to see gold consolidate or work marginally lower from current prices before breaking out to the upside. Right now the primary threat in this fledgling gold rally is a short term spike higher in the U.S. Dollar. The primary catalyst which could drive a flight to the Dollar involves the sovereign debt situation in Greece and the Eurozone as a whole.

While the short term price action may be bearish, the intermediate to longer term time frames are quite bullish for metals as central banks will continue to race to debase their currencies. Quantitative easing in the U.S. and around the world will become pervasive and gold prices could potentially soar in value. The data from the Federal Reserve Bank itself suggests that they are indeed increasing the money supply. As time has passed, the money supply and gold have seemingly grown in lockstep with one another. Surely inquiring minds do not consider this mutual relationship between gold and the money supply to be purely coincidental.

As further evidence that the Federal Reserve continues to use quantitative easing to manipulate asset prices through direct entry into financial markets, a chart of the velocity of M2 clearly depicts that the velocity of money is declining. I am not an expert regarding macroeconomic data, but if the velocity of money is declining to 1960’s levels would it be a stretch to say that we may be going through a period of stagflation? The chart below illustrates the Velocity of M2 Money Stock courtesy of the St. Louis Federal Reserve Bank.

Velocity of M2 Money Stock

For those unfamiliar with the term velocity of money, it is simply the rate of turnover in the overall money supply. The velocity of M2 is expressed as the number of times that a Dollar is used to purchase final goods or services which are included in the total gross domestic product.

Conclusion

The short term technical picture in gold is a bit suspect due to overhead resistance and recent U.S. Dollar strength. However, the longer term macro factors that impact the value of the U.S. Dollar and precious metals are all telling us the same thing.

As time wears on and central banks do even more to prop up the broader economy and failing financial institutions, it is without question in my mind that gold and silver will both benefit handsomely from these decisions being made by central bankers from around the world.

Ultimately, I am very bullish of gold and silver in the intermediate to longer-term, but in the immediate short term frame gold could consolidate or pullback before breaking out to the upside.

By: Chris Vermeulen – Get Chris' Free Weekly ETF Reports & Analysis 
Co-Author: JW Jones – Get J.W.s Free Weekly Options Reports & Analysis

The Fed, the S&P 500, & Why Gold Is Shining Bright

Well here we are, caught between resistance in the S&P 500 around the 1,330 area and support around the 1,300 price level. My last two articles have discussed why I was expecting a top in the coming days and weeks ahead, but prices just continued to work higher.

One of the things that I pride myself in as a person who trades and writes about financial markets in public is that I am always honest. If I blow a call I fess up and admit it. When I have made mistakes in the past, I always try to learn something new from them and I discuss losing trades publicly with readers and members of my service.

This time is different. I honestly do not know if I am going to be right or wrong. The price action in the S&P 500 Thursday was certainly bearish short term, but a back test of 1,300 or possibly even 1,280 could give rise to a Phoenix. Granted, the Phoenix is nothing more than Ben Bernanke’s pet, but that is a topic for a different time.

I have scanned through my list of indicators which discuss sentiment based on momentum, put/call ratio, the advance/decline line, Bullish Percent Indicators, and several ratio based indicators and they are all SCREAMING that a top is near. The interesting thing about the previous statement is that it would have been true a week ago and mostly true two weeks ago, yet prices have continued to climb.

The daily chart of the S&P 500 Index demonstrates the recent price action that has continued to climb the “Wall of Worry” for several weeks:

S&P 500 Daily Chart

 

The culmination of the massive run higher for the S&P 500 was the dovish comments coming from Ben Bernanke during Wednesday’s press release and press conference.

The U.S. & European Central Banks are seemingly in a perpetual race to debase their underlying fiat currencies. The race will not end well. In fact, this type of situation smells like a Ponzi scheme where Ben Bernanke and Mario Draghi (ECB President) are the wizards behind the curtains. Their loose monetary policies and forced reflation are synthetic drugs that juice risk assets higher and ultimately Mr. Market will have his vengeance in due time.

At this point, it seems like Ben Bernanke will do anything to juice equity prices higher. I think his hope is that they will be able to artificially keep the game going until the recovery is on a more sound footing. However, when the entire recovery is predicated on cheap money and liquidity and is not supported by organic economic growth it just prolongs the inevitable disaster.

As an example, the daily chart of the Dow Jones Industrial Average is shown below. I would point out that that Dow came within 35 points (0.27%) from testing the 2011 highs. Furthermore, the Thursday high for the Dow was only 1,356 points (10.55%) from reaching the all-time 2007 October high.

Dow Jones Industrial Average Daily Chart

 

I have argued for quite some time that the economy and the stock market are two different things. If Bernanke and his cronies succeed in reflating the financial markets and the Dow reaches its October 2007 high in the near term, more retail investors will regard equity markets as being rigged.

Who could blame them for viewing financial markets as a giant rigged casino that stands to win while they continue to lose their hard earned capital? We all recognize that the current economy is nowhere near as strong as it was in 2007. But alas, the regular retail investor does not recognize that the stock market and the economy do not portray the same meaning.

One specific underlying catalyst that has gone largely unnoticed by most of the financial media during this sharp run higher in stocks is the total lack of volume associated with the march higher. The NYSE volume over the past 2 months has been putrid when compared to historical norms.

As a trader, I am forced to take risk through a variety of trade structures. However, the idea that a crash could be coming seems hard pressed as long as Big Bad Ben is at the wheel.

If the Russell 2000 drops 10%, I am convinced that Ben will be out making announcements that the Fed stands ready to intervene with all of the supposed tools they have at their disposal. Let’s be honest here, they really have one tool comprised of 3 separate functions which are all a mechanism to increase liquidity in the overall system. To express this liquidity, the following chart from the Federal Reserve shows the M2 money supply levels:

Current M2 Money Supply

 

The 3 functions are the printing of currency, the monetization of U.S. Treasury debt (QE, QE2, QE2.5, Operation Twist), and exceptionally low interest rates (ZIRP) near 0 for an “extended period of time (2014).” Since monetary easing is all that the Federal Reserve has done since the financial crisis began, it begs to reason that the Federal Reserve has no other solutions or tools available. If they did, they seemingly would have used them by now.

The first bubble they created due to loose monetary policy was the massive bubble in oil in 2008. Fast forward to the present, and they are currently supporting another bubble in U.S. Treasury obligations. The bubble that they will create in the future when the game finally ends will be in precious metals. The precious metals bubble will be building while the Federal Reserve and the U.S. Treasury attempt to keep the Treasury Bond bubble from bursting.

At this point in time, if we continue down this path stocks will not protect investors adequately from inflation should the Treasury bubble burst. I would argue that the central planning and monetary policy we have seen the past few years continues in the United States and Europe that gold, silver, and other precious metals are likely to begin their own bubble of potentially epic proportions.

As the weekly chart of gold futures illustrates below, gold has recently pulled back sharply and has broken out. I will likely be looking for any pullbacks in gold as buying opportunities as long as support holds.

Gold Weekly Chart

 

In closing, for longer term investors the stock market might have some serious short term juice as cheap money and artificially low interest rates should juice returns. However, eventually equities will start to underperform. At that point, gold will be in the final stages of its bubble and the term parabolic could likely be applied.

If central banks around the world continue to print money there are only a few places to hide. Precious metals and other commodities like oil will vastly outperform stocks in the long run if the Dollar continues to slide. The real question we should be asking is who will win the race to debase, Draghi or Bernanke?

By: Chris Vermeulen – Click here to get Chris' Free Weekly ETF Reports & Analysis
Co-Author: JW Jones – Click here to get J.W's Free Weekly Options Reports & Analysis

Get their Free weekly low risk stock picks!

Gold Appears to Break Out of it's Down Trend

The stock markets had a very solid session. Most charts shot higher after Apple beat estimates Tuesday night surging over 10%. This set the tone for stocks Wednesday. Also the FOMC said they would keep interest rates low until mid 2014 and projected a 2% inflation rate which took the market by surprise. Looking at the 10 minute intraday charts of gold, silver, oil, and the SP500 you would think it was the 4rth of July with everything shooting higher.

My gut feeling before the FOMC meeting was that there would be no QE3 announced. This I figured would trigger the dollar to rise which in turn would put pressure on stocks and commodities. But the low interest rates until mid 2014 was the wild card trumping that scenario.

Trading around FOMC meetings always brings a heightened level of uncertainty to traders and investors. The news is unpredictable making that much more of beast to try and out smart. I personally do not trade on any news because of the added risk involved.

Let’s take a quick look at gold and silver...

The Weekly Gold Chart:

Gold has started to break out of its down trend and if it can hold up into Friday’s close then it will be a very positive sign for the shiny metal. It is still mid week and a lot can happen, so let’s see how it holds up and go from there.

The Weekly Silver Chart:

Silver has some work to do before it’s back in an uptrend on the weekly chart. I would not be surprised to see it catch up with gold and run toward the $35 resistance level in the next couple days.

Mid-Week Trend Conclusion:

In short, gold is on the move and in the next few weeks I figure we will be getting involved. Silver I think will unfold a little different from a chart pattern point of view, but I do feel there will be a buying opportunity soon also.

Looking more broad based we are seeing the stock market continue to make new highs with solid volume behind it while Crude oil continues to tread water.

Get my free weekly reports and videos here at The Gold and Oil Guy

Chris Vermeulen

U.S. Dollar Continues to Control Gold, Crude Oil & Equities

Over the past few months it seems as though everything has been tied to the dollar. Simple inter-market analysis makes it obvious that almost everything in the financial market eventually has an affect on stocks and commodities in some way. But recently trading has really been all about the dollar. If you watch the SP500 and gold prices you will notice at times virtually every tick the dollar makes directly affects the price and direction of gold and the SP500 index.

Let’s take a look at some charts to see the underlying trends and what they are telling us…

Dollar Index – Daily Chart
As you can see the trend is clearly down. Currently the dollar is trying to find a bottom as it bounces and pierces the previous high. The question everyone wants to know is if the dollar is about to rally and reverse trends or was Friday’s pierce of the October high just a shake out before the next leg down?

Back in late August the dollar pierced the July high on an intraday basis (shake out) just before prices dropped sharply. I think this could very easily happen again but when you see what gold volume is doing, it’s a different story.

Those who follow me closely know I focus on trading with the underlying trend, but manage my risk by trading smaller position sizes when the market has more uncertainty than normal with is what we are currently experiencing.

GLD – Gold Fund – Daily Chart
Gold and the dollar are almost inverse charts when comparing the two. Gold happens to be testing a key support level and its going to be interesting to see how the price holds up going forward. The one thing that has me concerned is the amount of selling taking place. The chart shows heavy volume selling and could be warning us of a possible trend change in the dollar, gold, oil and equities in the coming weeks.

Again the trend for gold is still up, so I would not be trying to short it at this time, rather look to buy into dips until the market trend proves us wrong. That being said, with the selling volume giving off a negative vibe and the fact that gold has rallied for such a long time, any new positions should be very small....

Crude Oil – Daily Chart
Oil looks to be forming a possible cup and handle pattern. If the Dollar continues to consolidate for another 1-3 weeks and breaks down, then we should see the price of oil trade in the range shown on the chart and eventually breakout to the upside. I have a $95-100 price target on oil if the dollar continues to trend down. Until we see some type of handle form here I am not trading oil.

SPY – SP500 Fund – Daily Chart
The equities market looks to have had one of those days which spooked the herd. Friday the price dropped triggering protective stops with rising volume. I was watching the intraday chart as the SP500 broke below the weeks low, and this triggered protective stops which can be seen on the 1 minute charts. In an uptrend I prefer watching stops get triggered because it means traders are getting taking out of long positions and most likely looking to play the short side. When the masses become bearish on the market, that’s when I start looking to play the upside in a bull market (buy the dip).

The chart below clearly shows the days when the shake outs/running of the stops took place. Most traders were exiting their positions and/or going short because the chart looked bearish. One thing I find that helps my trading is that if the chart looks rally scary (bearish) then I start looking at a shorter term time frame for a possible entry point to go long using price and volume analysis.

Weekend Market Trend Trading Conclusion:
In short, I feel the market is at a critical point which will trigger a very strong movement in the coming days or weeks. Because the dollar, gold, oil and the equities market have had such big moves I think trading VERY DEFENSIVE is the only way to play right now. That means trading small position sizes. Right now I am trading 1/8 – 1/4 the amount of capital I generally use on a trade. Meaning if I typically put $40,000 to work, right now I am only taking positions valued at $10,000.

Remember not to anticipate trend reversals by taking a position early. Continue to trade with the underlying trend with small positions or skip a couple setups if you feel strongly of a possible reversal. Once the trend reverses and the volume confirms, only then should you be playing the new trend. Picking tops can be expensive and stressful.

Get Chris Vermeulen's Daily Pre-Market Trading Analysis Videos, Intraday Updates & Trade Alerts Here at www Gold And Oil Guy.com



Share

SP 500 Fakeout & Market Trend

From Chris Vermeulen, The Gold and Oil Guy....

I think it’s safe to say that everyone knows the markets are manipulated… but during options expiry week we tend to see prices move beyond key resistance and support levels during times of light volume which triggers/shakes traders out of their positions.

Trading during low volume sessions Pre/Post holidays for swing traders or between 11:30am – 3:00pm ET for day traders tends have increased volatility and false breakouts. This happens because the market markets for individual stocks can slowly walk the prices up and down beyond short term support and resistance levels simply because there is a lack of participation in the market.

SP500 4 Hour Candlestick Chart
That being said, the chart below of the SPY (SP500 ETF) shows that last Thursday, (the day before Friday options expiry) the put call ratio was showing extreme bullishness. I also mentioned that we should expect a pop of 0.5 -2% in the next 24 hours as big guys will try to shake everyone out of their short positions (put options).

The put/call ratio indicator at the bottom of this chart is a contrarian indicator. When it shows that everyone has jumped to the bullish side, the big money knows its about time to change the direction so they can cash in at premium price levels.

SP500 60 Minute OptionsX Chart of the Week
If you look at the volume at the bottom of the chart you will see there are times where this virtually zero volume trades. The yellow high lighted section shows the overnight price surge which is very easy for the big guys to push higher as everyone sleeps.

Here is what they are doing. The light volume makes it easy to manipulate so they push it higher until key resistance is broken, then everyone who was short and had a protective stop in place will have their order executed. As the price rises, more and more stops get triggered. Also, with the rising number of traders becoming bullish from the previous session have buy orders to go long if key resistance is broken. This causes a virtually automated rally to unfold, but once the orders/buying dries up, the big guys start selling their positions at premium prices, pushing the price all the way back down to where the market closed the previous day.

In short, the big guys shook the majority of traders out of their positions Thursday night and pocketed a ridiculous amount of money. Crazy part is 99% of the public don’t even know this type of thing is happening while they sleep.

SP500 OptionsX Intraday Price Action
I thought I would show this chart as it shows the selling pressure in the market. What I find interesting about this chart is the fact there was more selling volume during options expiry week, but the prices continued to move higher.

From watching the market internals I saw the majority of traders go from bearish to bullish by the end of the week, and this really gave the big guys a huge advantage in my opinion. Each session selling volume took control with the big guys unloading bu the low volume afternoons naturally brought prices up again as more and more traders became bullish each session. This happened all week and Thursday night it looks as though they let the price rise allowing the key resistance level to be broken which caused a surge of buying which they could selling into. So what’s next…

SP500 / Broad Market Trading Conclusion:
In short, the market looks toppy and if all goes well, last weeks overnight shakeout just may have been a top. This week will start off slow and most likely with light volume until Wednesday. During light volume times, keep trading positions smaller than normal and remember there is a neutral/upward bias associated with light volume.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 2-4 investments at a time, I’ll only be covering only one. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis per customer’s request, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of newsletter traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Let the volatility and volume return!

Chris Vermeulen

Get More Free Reports and Trade Ideas Here for Free: FREE SIGN UP



Share

What to Expect in April for Stocks & Precious Metals

Gold Exchange Traded Fund – Daily Chart

As you can see the price action of gold has been trading within a few patterns the past couple months. First we saw a nice ABC Retrace correction and now it looks like a possible reverse Head & Shoulders or Wedge pattern is forming.

All three of these patterns are bullish but resistance must be overcome before I will start putting my money to work.



NYSE & NASDAQ Indexes – Daily Charts

We saw the broad market trade sideways for the majority of the week. As usual we had a pre-holiday pop in prices with the week closing slightly positive for stocks. These gains are generally given back the following week as volume picks back up.

The one thing that has me scratching my head is that the major indexes like SP500, Dow, NASDAQ and Russell 2000, all stayed below their previous weeks high. But the NYSE as shown below as the top chart clearly broke out to a new high.

I look at the NYSE as leading indicator and this makes me think we could see stocks grind higher right into earning season. All we can do at this point is wait for more data points on the chart and continue analyzing the market one day at a time.



Weekend Trading Conclusion:
As I mentioned last week, the market is over extended as we enter earning season. The market is in the same situation as we saw going into the January earning season.

I do not think we will have a huge pullback but I think a 3-5% correction is likely in the coming days or week. Once we get a pullback we should see support around the 30 or 50 day moving averages and then see the market head toward new highs once again.

The precious metals sector is getting a lot of attention because of the whistle blower on JP Morgan stating that metals are seriously manipulated with a huge amount of short positions still in place. I think this could be helping this sector and I hope we get a low risk setup in the coming week or two.

Just click here if you would like to receive Chris Vermeulen's ETF Trading Signals.


Share

Weekend ETF and Market Report

From guest analyst Chris Vermeulen....

Last week ended on a positive note with stocks and commodities pushing higher into Friday’s close. The market overall is looking very unstable here and this week I figure there will be some big price movement.

Below are the charts on the DIA, GLD, SLV, UNG and USO funds so you can get a feel for the trend and additionally what I am looking for this week with respect to prices.

DIA – Daily & 60 Minute Chart
The Dow, along with the other indexes, has formed a bear flag and can be seen on the daily and 60 minute intraday charts below. This price pattern is a negative one and points to lower prices in the coming week.

If we get one more thrust down I figure it will spook the rest of the weak hands which in turn is a setup for a very nice multi week rally. If this flag turns into a rally then we will simply wait for a pullback and buy when there is a low risk setup.



GLD – Daily Chart
Gold has been doing much the same as the over stock indexes and I feel the same will happen here. We could see price rise for another day or two as it tests our blue resistance level before heading lower.



SLV – Daily Silver Chart
Silver has formed an interesting pattern the past few months and has now broken down. Silver’s chart continues to look weak as it drifts up to test resistance with a bear flag pattern that points to lower prices in the coming days, much the same as gold.



UNG – Daily Natural Gas Chart
Sorry for all the lines on this chart. It looks like a mess, I know, but it does show a possible trend change in UNG.

The trend has been down for over a year but now it looks as though it’s forming a reverse head & shoulders pattern and possible bull flag. These two patterns point to much higher prices in the coming months.

Natural Gas seasonally rallies in mid February into mid April. So this could be something we could catch for a multi month play. I may provide a stock to trade this rally in gas in addition to the ETF fund in the coming days or weeks, when ever this play unfolds.



USO – Daily Crude Oil Chart
Oil has been selling down very strong for the past 6 weeks but it is now trading at a key pivot point. Oil looks as though it’s trying to bottom here and in the next 1-2 weeks I think the energy sector will provide some great trades.



Weekend Trading Conclusion:
Overall, the market and metals bottomed last week or they have another leg down which I expect would happen this week if that’s the case. The charts are pointing to lower prices still. If the market does rally then we will simply watch the breaking and buy the pullback in 1-2 weeks once there is a low risk setup.

To get this weekly trading report sent via email to your inbox if you visit The Gold and Oil Guy .Com.


Share