Gold & SP500 Psychology: They Bail, We Buy

From guest blogger Chris Vermeulen....

Understanding market psychology is crucial for a trader’s success. But so many people get caught up in the daily market volatility, media coverage and “noise” of the trading environment, it’s almost impossible to not think and trade in agreement with the majority of traders.

However, effective technical analysis allows us to use trends, patterns and other indicators to evaluate the market’s current psychological state. Fortunately, this analysis can both enable us to independently forecast whether the market is heading in an upward or downward trend and do so against the grain of the majority.

It takes a disciplined trader to be able to watch and listen to the market doing one thing, filter out the noise, then do the opposite – all in a controlled manor. To this day I still find myself fighting the herd mentality at times and that is when I step away from the computer and regroup.

I have a simple rule that has saved me thousands over the years. I would rather miss a trade and learn what caused me to get confused, then to take a loss.

Rule # 1 – When in Doubt, Stay Out!

There are two types of traders:

1. Herd Mentality Trader – Someone who trades off fear and greed buying near tops and panic selling out at the bottom with the masses.
2. Black Sheep Trader – A trader who stand out from the masses and trades opposite to the “herd” during extreme levels.

Last weeks market action really allowed us to see which way the masses were moving. The extremely high selling volume and sharp price decline notified us that the market was trading off FEAR. And, last Thursday we actually saw PANIC which tells us the balance of the market (retail investors, John Doe’s, The “Herd”) were exiting their positions.

When we see this happen, it’s generally a good time to start scaling into long positions, as most of the down side has already happened.

I have been talking about an ABC retrace pattern for the indexes and gold for some time and last week we got just that. An ABC retrace is when we have 3 waves which are, down, small up, then another leg down.
In short this wave breaks the uptrend of higher highs and lows, as it forms a lower low telling novice traders to sell and go short. This is what causes the high volume and sharp sell offs.

Below are a few charts showing the 2009 July lows and where we are now, February 2010:

SP500 – Daily Trading Chart


Gold – Daily Trading Chart


Silver – Daily Trading Chart


Oil – Daily Trading Chart


Intraday Price Action – Just click here if you want to see some of my exciting intraday trading charts check out the setups last week.

Market Psychology Trading Conclusion:
Most get involved with the stock market because it looks like something they can quickly learn and start making money from home. But it doesn’t take long before they quickly realize there is more to trading than meets the eye.

While trading looks easy from a glance, in actuality I think its one of the toughest jobs out there.

Why? Well, this is what you are up against:
1. You are trying to predict something that is unpredictable
2. You are trading against millions of other highly skilled traders
3. You are trading against automated computers with complex algorithms
4. You are trading with your hard earned money which causes fear and greed
5. You must accept losing trades as that is part of the business
6. You must trade with a proven trading strategy and follow the system
7. You must understand money management and apply it to every trade
8. You must truly love the market cause it will break you down mentally

I don’t want to say you must be a contrarian, but in reality you must do the opposite of the masses during times of extreme price behavior.

These extremes happen on a daily basis when trading intraday charts and every 4-6 weeks when looking at daily charts. The toughest part is to pull the trigger when emotions are flying high in the market and you are looking to do the opposite. It takes several trades before you even start to get comfortable doing this.

I hope this helps shed some light on market psychology.

Just click here if you would like to Receive Chris Vermeulen's Gold Trading Newsletter and Analysis.

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Crude Oil Weekly Technical Outlook

Crude oil's rebound from 72.43 was limited at 78.04 last week and fall from 83.95 then resumed by diving to as low as 69.50 before closing at 71.19. Initial bias remains on the downside this week and deeper decline should now be seen to 100% projection of 83.95 to 72.43 from 78.04 at 66.52 next. On the upside, above 73.94 minor resistance will turn intraday bias neutral and bring consolidations. But upside should be limited below 78.04 resistance and bring fall resumption.

In the bigger picture, the strong break of medium term trend line support added much credence to the case of reversal. Medium term rise from 33.2, which is treated as a correction to fall from 147.27, should have completed at 83.95 already, on bearish divergence condition in daily MACD. Current fall from 83.95 should extend through 68.59 support towards next key cluster level at 58.32 (50% retracement of 33.2 to 83.95 at 58.58). Decisive break there will strongly suggest that whole decline from 147.27 is resuming for a new low below 33.2. On the upside, break of 78.04 resistance is needed to indicate that fall from 83.95 has completed. Otherwise, outlook will remain bearish.

In the long term picture, there is no change in the view that fall from 147.27 is part of the correction to the five wave sequence from 98 low of 10.65. While the rebound from 33.2 is strong and might continue, there is no solid evidence that suggest fall 147.27 is completed and we're still preferring the case that rebound from 33.2 is merely a corrective rise only. Having said that, strong resistance should be seen between 76.77/90.24 fibo resistance zone and bring reversal for another low below 33.2 before completing the whole correction from 147.27.....
Nymex Crude Oil Continuous Contract 4 Hours Chart.

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Phil Flynn: PIGS in Space

When I go down on the trading floor and talk about pigs, normally I am referring to hogs or pork bellies. But this week is something different. We'll focus our attention on Portugal, Ireland, Greece and Spain. Or you can exchange or add another I if you want to throw in Italy. In this case PIGS - or PIIGS - is not the other white meat, but a cause of great concern on the global economic scene.

Portugal now seems to be the main epicenter of the constantly shifting risk factors in the ongoing global economic crisis. Even casual observers of the global market place have been aware of the recent problems growing in the Eurozone particularly with Greece. The massive debt in Greece has roiled the global market for most of the year and now there are fears that their problems may be spreading throughout the region. Oh sure, the other countries within the designation PIGS or PIIGS if you prefer, did not want to be coupled together with Greece perhaps because they did not want to be part of something called PIGS or because they were fearful that the association with Greece and their problems could spread to them faster than a winter cold. Spain’s Finance Minister Elena Salgado was one of the first to speak out and said that Spain's situation is not like that of Greece. Yet earlier this week it seems that when one of these little PIGS’s went to the market and found that things were not that good.

The market really got fearful after Portugal basically had a failed bond auction. The Portuguese treasury and Government Debt Agency tried to sell €500 million in 12 month bills but was only able to sell €300 million. This raised concern that buyers of debt are getting tired of getting low rates of return when sovereign countries credit worthiness is not what should be. Last year Portugal’s debt was 9% of its GDP and with a potential softening in the EURO zone, bond buyers think that their chances to be paid back might not be that good. Obviously that means that bond buyers will demand a higher rate of return to take on more risk thus ultimately driving up interest rates in Portugal and throughout the region as debt strapped nations vie for capital to fund their out of control spending.....Read the entire article.

The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

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Oil Futures Plunge, Bond Markets Vote America

Statsweeper registered alerts across the entire WTI oil futures complex yesterday.

Prices fell dramatically, with all six of the nearest contracts down over 5%. Four-month futures took the biggest percentage dive, dropping 5.6% from $78.60 to $74.21 per barrel.

Front month futures fell 5.1%, from $77 to $73.06.



As widely reported, the fall in WTI was part of a larger sell off in commodities. Triggered by strengthening of the U.S. dollar.

With all the focus on yesterday's selling, there was less press on the things being bought. Most notably U.S. Treasury notes.

Alerts registered for falling yields on three-, five- and ten-year Treasury securities. Yields plunged as traders piled into these investments, driving up prices.

This is significant. Many analysts recently predicted investors would shun U.S. government debt as America's deficit spending rises and the nation's monetary base remains ballooned by more than $1 trillion compared to just 18 months ago.

But it appears when the markets get shaky, buyers still see U.S. bonds as the safe haven investment of choice.

Particularly interesting was investors' choice of Treasuries. Yields fell most notably for the three year note, dropping nearly 7% to 1.34% yield. This is the lowest yield registered since late December 2009.



Buying was also strong on the five-year note, which fell 4.6% to 2.29% yield. And the ten-year, falling 2.9% to 3.62% yield.

This contrasts with previous "flight to safety" buying of Treasuries, where purchases were focused on short-dated notes and bills. Often with maturities of 52 weeks or less.

Bill yields did fall yesterday. With the 52 week bill down 12.1% to 0.29% yield. But overall buying of these securities hasn't been as strong as might be anticipated.

52 week bills are still trading in the same range that's prevailed over the last few weeks. By contrast, two-, three- and five-year note yields appear to have broken resistance, moving markedly lower than recent trading ranges yesterday.



If this trend continues, it suggest investors are willing to lock in their money with the U.S. government for longer periods than they were previously comfortable with. A big vote of confidence for America and the U.S. dollar.

From The Staff at Oil Price .Com

Statsweeper is the financial community's premier data monitoring engine. The site tracks commodities, economics and finance data from around the globe, and alerts investors to critical changes and emerging trends. Visit www.statsweeper.com for more, and sign up for Pierce Points daily e-letter (www.piercepoints.com) for commentary on what the data mean for your commodities investments.
info@statsweeper.com

The information provided here is based on data collected by www.statsweeper.com and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade any securities or commodities named herein. Information contained herein is obtained from sources believed to be reliable, but is in no way assured. All materials and related graphics provided herein and any other materials which are referenced herein are provided "as is" without warranty of any kind, either express or implied. No assurance of any kind is implied or possible where projections of future conditions are attempted. Readers using the information contained herein are solely responsible for verifying the accuracy thereof and for their own actions and investment decisions.
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Where is Oil Headed Next week?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed next week.




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Crude Oil Bears Take a Clear Advantage Into The Weekend

I must admit, I have been looking forward to posting my bear waiting for his steak dinner, and it looks like he is getting it. Crude oil closed lower on Friday and tested the 87% retracement level of the September-January rally crossing at 69.58. The mid range close sets the stage for a steady opening on Monday. Stochastics and the RSI are diverging and are turning neutral to bearish signaling that sideways to lower prices are possible near term.

If March extends the decline off January's high, September's low crossing at 67.46 is the next downside target. Closes above the 20 day moving average crossing at 76.85 are needed to confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 74.36
Second resistance is the 20 day moving average crossing at 76.85

First support is today's low crossing at 69.50
Second support is September's low crossing at 67.46

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Natural gas closed higher on Friday and above the 20 day moving average crossing at 5.489 confirming that a low has been posted. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term.

If March extends today's rally, the reaction high crossing at 5.804 is the next upside target. Closes below Thursday's low crossing at 5.227 would temper the near term friendly outlook.

First resistance is today's high crossing at 5.598
Second resistance is the reaction high crossing at 5.804

First support is Thursday's low crossing at 5.227
Second support is last week's low crossing at 5.060

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The U.S. Dollar closed higher on Friday as it extended this week's rally above the 38% retracement level of the 2009-2010 decline crossing at 79.71. The high range close sets the stage for a steady to higher opening on Monday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways prices are possible near term.

If March extends this winter's rally, the 50% retracement level of the 2009-2010 decline crossing at 81.32 is the next upside target. Closes below the 20 day moving average crossing at 78.47 would confirm that a short term top has been posted.

First resistance is today's high crossing at 80.82
Second resistance is the 50% retracement level of the 2009-2010 decline crossing at 81.32

First support is the 10 day moving average crossing at 79.34
Second support is the 20 day moving average crossing at 78.47

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Crude Oil Futures Fluctuate in New York After U.S. Unemployment Rate Drops

Crude oil fluctuated after a government report showed the U.S. unexpectedly lost jobs last month while the unemployment rate declined.

Oil rose as much as 1.1 percent and slipped 0.9 percent after the Labor Department report was released in Washington. Employment fell by 20,000 in January as the jobless rate dropped to 9.7 percent, the lowest level since August. Prices plunged 5 percent yesterday, the biggest decrease since July 29.

“There’s a lot of uncertainty about how to interpret the payroll data,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “After yesterday’s big drop the market looks shaky, and it will be hard to maintain any moves higher.”

Crude oil for March delivery declined 8 cents to $73.06 a barrel at 10:38 a.m. on the New York Mercantile Exchange. Futures were little changed this week and are up 77 percent from a year ago.

The Standard & Poor’s 500 Index rose 0.1 percent to 1,064.35. The dollar climbed 0.3 percent versus the euro to $1.3677, from $1.3723 yesterday.

The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

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Goldman: Oil Will Get Expensive Now That The Tankers Are Done Hoarding It

Goldman's David Greely is making a near-term bullish case for oil. His optimism is driven by A) The strong U.S. ISM Manufacturing data we had two days back, B) the fact that renewed Nigerian violence threatens supply, and C) the reduction in overhang caused by oil hoarded at sea in tankers (floating storage).

While the relationship appears far from perfect, he argues that U.S. oil demand tends to track ISM Manufacturing Index readings:

Most interestingly for short-term traders, Falling floating storage implies a tighter market, since less supply is basically out there ready to be sold into the market.

David Greely @ Goldman: [emphasis added] The area where the improvement in near-term fundamentals has been most pronounced in recent weeks is in the amount of oil in floating storage. The use of tankers to store excess supplies of crude oil and gasoil over the past year has been emblematic of the weakness in supply demand fundamentals during the recession, and the unloading of these tankers has been broadly viewed as a necessary precursor to a cleanup over the overall oil market.

Consequently, reports that anywhere from 0 to 50 million barrels of the total oil in floating storage has been recently unloaded have suggested a potential turn around in oil market fundamentals.



Follow guest blogger Vince Fernando at twitter @vincefernando


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Crude Oil Higher on Better then Expected Unemployment Numbers, Short Covering

Crude oil was higher due to short covering overnight as it consolidates some of Thursday's decline. Stochastics and the RSI are diverging but are turning neutral to bearish signaling that sideways to lower prices are possible near term.

If March extends this week's decline, the 75% retracement level of the September-January rally crossing at 71.70 is the next downside target. Closes above the 20 day moving average crossing at 76.94 are needed to confirm that a short term low has been posted.

Crude oil pivot point, our line in the sand is 74.24

First resistance is the 10 day moving average crossing at 74.53
Second resistance is the 20 day moving average crossing at 76.94

First support is Thursday's low crossing at 72.42
Second support is the 75% retracement level of the September-January rally crossing at 71.70

The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010

Natural gas was higher due to short covering overnight as it consolidates above the 10 day moving average crossing at 5.378. Stochastics and the RSI remain neutral to bullish signaling that additional strength is possible near term.

Closes above the 20 day moving average crossing at 5.487 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, the 75% retracement level of the December-January rally crossing at 4.919 is the next downside target.

Friday's pivot point for natural gas is 5.381

First resistance is the 20 day moving average crossing at 5.487
Second resistance is Wednesday's high crossing at 5.558

First support is last Thursday's low crossing at 5.060
Second support is the 75% retracement level of the December-January rally crossing at 4.919

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The U.S. Dollar was higher overnight as it extends this week's rally above the 38% retracement level of the 2009 decline crossing at 79.71. Stochastics and the RSI are overbought but are neutral to bullish signaling that sideways to higher prices are possible near term.

If March extends this winter's rally, the 50% retracement level of the 2009 decline crossing at 81.32 is the next upside target. Closes below the 20 day moving average crossing at 78.45 would confirm that a short term top has been posted.

First resistance is the overnight high crossing at 80.59
Second resistance is the 50% retracement level of the 2009 decline crossing at 81.32

First support is the 10 day moving average crossing at 79.31
econd support is the 20 day moving average crossing at 78.45

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Crude Oil Daily Technical Outlook For Friday

Crude oil's rebound from 72.43 should have completed at 78.04 already and fall from 83.95 is resuming. Break of 72.43 low will target 68.59 support next. On the upside, above 74.50 will turn intraday bias neutral and bring recovery. But upside should be limited below 78.04 resistance and bring fall resumption.

In the bigger picture, current development revives the case that medium term rise from 33.2 has topped out at 83.95 on bearish divergence condition in daily MACD. Break of 68.59 will confirm this case and target 58.32 support next. On the upside, however, above 78.04 resistance will dampen this view and argue that the medium term rise might still be in progress. Nevertheless, even in case of another high above 83.95, we'd continue to look of reversal signal as crude oil approaches 50% retracement of 147.27 to 33.2 at 90.24, which is close to 90 psychological level.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

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