Seven Keys in Timing Stock Market Tops – Part II

Timing stock market tops and bottoms is risky business and we all know the more the more risk we take the more potential gain would could also made. Correctly timing a top or bottom for any investment is flat out exciting not to mention financially rewarding. But this high risk trading tactic does come with some major issues which you must FULLY understand so that you can protect your capital and self confidence.

On May 13th I wrote a special report on how to spot market tops just before they happen and how to do it with a very high probability of success. I also explain the major pit falls to be aware of so you stay on the right side of the market.

I recommend you read this special report right now.... "How to Spot and Time Stock Market Tops"

That special report truly showed you what was going to happen a few weeks before it did. Much like how this report shows you what is likely to happen in June.

Looking at the market with my YOU ARE HERE type of using cycles, volume, price patterns and momentum to forecast what is likely to unfold in the coming weeks. Depending on the time frame used for my analysis I can figure out with a high probability where price will be in a few minutes, hours or days also. Mall Market Directory – You Are Here

Stock market tops are tough to trade and time. That is because there are so many things happening in the media and emotions running wild that it’s tough to get a grasp on what you should really be focusing on to keep a level head trade around it.

Market tops are typically not an event but rather a progression that takes much longer than most individuals expect. I still find myself jumping the gun at times and I know this and have been through this process hundreds of times in various investments. The human brain is a powerful tool but emotions can force you to override your rules/strategy still.

Stop Fighting! – Bulls & Bears are BOTH Correct at this Stage

It does not matter where you go to get your stock market news and reports… Everyone is arguing their bullish or bearish case more than EVERY. There is a reason for this and it’s because the SP500, DJIA, RUT and NASDAQ appear to be entering a cycle top. What does this mean? It means the uptrend is almost over from a technical analyst point of view, and those who are have been bearish for a long time feel the market topping out more now than ever in their gut that this is the top.

Keeping it simple removing news, economic data, emotions and biases we are left with one thing which is technical analysis. This is based on price alone and that is important to remember because the only thing that pays you money for an investment is when price moves in your favor. Believe it or not price only has blips on the charts here and there which is based off news, economic data etc… In the big picture stock prices tend to lead economic data by several months and in some cases years.

So the big question is this… If price action is the only thing that pays you when trading why bother worrying about all the other opinions, news out there. That stuff only adds to the confusion and in most cases gets you on the wrong side of the market.

Timing the Market Top Conclusion:

In short, from a technical point of view the SP500 remains in an uptrend. But according to technical analysis the upside momentum is starting to slow. If we get a few more down days then the trend will flip and be down but it has not yet happened.

When the trend does reverse down you must remember that 80% of the time price will bounce back up to test near the recent highs before truly rolling over and collapsing. Think of it like a zombie movie. Just when you think you killed one it comes back to life for one last scare before its dead.

Just to touch on stock market bottoms so you do not get confused. Stock market bottoms are little different than tops so they are traded differently. I will cover them when the time comes.

Trading the market is not easy during this type of condition, which is why members and myself got long SSO on the 23rd and two days later sold out for a 3.5% gain. I am now looking to reload this week for another bounce/rally play but only time will tell if we get another setup.

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SP500, Russell 2K, Dollar Index and Gold’s – Fake out or Shakeout?

 From The Technical Traders.......

Today has been quite a trading session with risk assets rocketing higher after Mario Draghi of the European Central Bank reiterated what has already been stated. The S&P 500 Index (SPX) is posting some nice gains, but price has not taken out the recent ascending trendline illustrated in the daily chart of SPX shown below. Until that ascending trendline is taken out, the bears remain in control of the price action.

S&P 500 Index (SPX) Daily Chart

Today’s rally has certainly served to work off short term oversold conditions. With the first GDP estimate for the 2nd Quarter scheduled for tomorrow things could get interesting. In the meantime, the closing price today is key. My expectation is that we will not see the S&P 500 Index push back above the ascending trendline today. For the price action to flip back bullish, we need a much stronger than expected GDP result tomorrow.

Another key daily chart which helps provide support that the bears remain in control of the price action is the Russell 2000 Index (RUT). The RUT has given back roughly 50% of its entire move and at this point has failed to even regain the 200 period moving average on the daily chart. Price action would need to climb over 20 points to simply backtest the breakdown level illustrated below.

Russell 2000 Index (RUT) Daily Chart

As long as the RUT holds below the key rising trendline, the bulls must be questioned. However, should the S&P 500 Index and the RUT push back above the ascending trendlines on their daily charts I will become much more constructive regarding the short to intermediate time frames for risk assets.

The other key chart of the day can be found no further than the U.S. Dollar Index futures. The U.S. Dollar Index futures absolutely collapsed today and move all the way down to test the 50 period moving average on the daily chart. So far, the short-term rising trendline has offered support along with the 50 period moving average and the Dollar has bounced sharply higher.

U.S. Dollar Index Futures Daily Chart

As long as price holds above the short-term rising trendline, the Dollar will be able to continue to push higher from this level. Should a breakdown occur we have even more support below around the $81 price level. After a move this strong, it could take days and maybe even weeks for the Dollar to regain its footing. However, the forthcoming Federal Reserve announcement next week will likely seal the Dollar’s fate.

Gold and silver futures are both trading nicely higher on the session in light of the weaker Dollar. However, both precious metals have faded later today as the Dollar started to drift back to the upside. Gold and silver are trying to breakout, but we need to see some continuation before I intend to get involved.

Gold Futures Daily Chart

Sometimes weak breakouts in price action can lead to ugly reversals. I’m not suggesting that a failed breakout will occur in gold and silver futures, but I remain cautious as the breakout so far does not have me totally convinced. Volume in silver is not spiking like it should be and gold volume is also weak considering the possibility that major breakouts are taking place.  Another element that is simply not confirming with strong price action or volume is the gold miners. On a day like today, all that they can muster is a relatively small gain on super light volume. Caution is warranted!

Oil futures are also not shooting considerably higher even though the Dollar remains under pressure. To me, today seems like it could be a misdirection day based on the price action and lack of volume we are seeing to the upside in hard assets like gold, silver, and oil. In addition, volume in the major equity indices and futures is super light. For now, I am going to remain cautious and will likely look to avoid taking on any major risk until the dust settles on the GDP number and the Fed’s future decision. Sometimes sitting in cash is not so bad after all!

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