Is Gold Playing Out The "Buy The Rumor Sell The News" Trade?

Do any of us really believe our fearless leader at the Federal Reserve when he makes statements like "we are not seeing any inflation". We think most traders and even the average investor knows this is just not true. As countries like Egypt see food prices surging. Over the past couple years everyone has been talking about how inflation will soon start and that has been one of the main driving forces for higher precious metals prices.

As we all know the market does the opposite as to what the majority of investors are doing. And while everyone has been buying metals in anticipation of inflation, we find it amusing how inflation for the first time is clearly presented on TV (Egypt issues) and we see gold and silver trading lower than they were a month ago. Seems like the buy the rumor sell the news lives is playing out. But the question everyone is starting to ask is how far will the metals correct?

We do not think they will drop much further but we do think it’s going to take 6-8 months before we see new highs in both gold and silver. They have had a nice run but now it looks as though they may cool off for a while. We could see some strength in the dollar for a little while and that should keep some pressure on metals even though inflation is clearly starting to show up around the world. Then the metals should start to climb the wall or worry again.

Below you'll find our updated charts on gold, silver and the gold miners index. Not much has really changed from last week analysis other than both gold and gold miners are getting deeper into a resistance level forming a bear flag pattern.

Gold Daily Chart
Gold is working its way up into a key resistance level and forming a possible bear flag.

Silver Daily Chart
Silver has been testing its key resistance level for a few days. It is normal to see silver push the limits and make larger moves simply because it is thinly traded and much more volatile. It looks ripe for a pullback at this area.

Gold Miners Daily Chart Index
Gold stocks have put in a nice bounce from the strong selling in January. As it pushes up into a resistance level it’s starting to look more attractive as a short play also. I still think the market has a couple more days to upward/chop before metals see possibly another thrust down, but that also depends on what the dollar does this week. The dollar does look ready to rally this coming week and that will put pressure on metals.

Conclusion For Gold Trading This Week:
In short, we an still neutral to bearish on gold, silver and gold stocks. Last week’s report showed these same patterns and it takes time for patterns to mature. The market always tends to take longer than we think to start a move.

At the moment we are waiting for metals to form a low risk entry point which looks to me like we could take a short position for another downward thrust in the market unfolds as the charts are hinting to before we buy gold for another long term hold as inflation rises.

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Higher Food Prices Supports Gold....Can it do the Same for Crude Oil?

Crude oil is trading slightly higher as oil is trying to recover from Fridays beating on disappointing U.S. non-farm payrolls data, still below the psychological barrier of $90. But gold takes the center stage with commodity traders again as higher food prices gives gold bulls a reason to cheer. Higher food prices usually supports gold prices due to increased inflation and political unrest like we are seeing in Egypt. And traders are asking "Is OPEC member Algeria next?" as food prices there soar.

Crude oil stochastics and the RSI are turning bearish hinting that a short term top might be in or is near. Closes below the 10 day moving average crossing at 89.13 would temper the near term friendly outlook. If March renews the rally off January's low, January's high crossing at 93.46 is the next upside target. First resistance is last Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 10 day moving average crossing at 89.13. Second support is January's low crossing at 85.11. Crude oil pivot point for Monday morning is 89.72.

Natural gas gapped down and was lower overnight as it renewed the decline off January's high. Stochastics and the RSI are oversold but are bearish signaling that additional weakness is possible near term. If March renews the decline off January's high, the 75% retracement level of the October-January rally crossing at 4.097 is the next downside target. Closes above the 20 day moving average crossing at 4.453 are needed to confirm that a short term low has been posted. First resistance is the 10 day moving average crossing at 4.372. Second resistance is the 20 day moving average crossing at 4.453. First support is the overnight low crossing at 4.187. Second support is the 75% retracement level of the October-January rally crossing at 4.097. Natural gas pivot point for Monday morning is 4.322.

Gold was lower overnight as it consolidates some of the rally off January's low. Stochastics and the RSI remain bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1353.20 are needed to confirm that a short term low has been posted. If February renews the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 20 day moving average crossing at 1353.20. Second resistance is the reaction high crossing at 1394.70. First support is January's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Monday morning is 1351.80.


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How Much Violence is to Much Violence For Crude Oil Prices?

World oil markets took prices higher overnight as pro Mubarak demonstrators took the streets of Egypt Thursday bringing a new level of violence and adding to the tension. But the added tension does not appear to get the attention of Suez Canal operators or customers as the canal maintains it's normal 50 ships a day average. 49 on Thursday and even 56 one day this week. Traders in the U.S. still seem to be more concerned with gasoline inventories being at an 18 year high in this country.

Maybe the news should be focused on the natural gas trade at this point. Record cold temps in my region, the desert southwestern U.S., have us experiencing natural gas shortages. A wake up call for those calling for wide spread use of natural gas as a vehicle fuel. We have a lot to do in the form of getting infrastructure in place before we can even begin to make that move. Is Washington listening? Gold may be the trade of the day as gold miner stocks continue to under perform. Gold stocks underperformed the price of gold this week and are also forming a bearish chart pattern. If this plays out then we can expect another sizable pullback in both gold stocks and the price of gold because this index typically leads the gold. And it looks like Fridays employment data will be front and center for gold and the markets today.

But we are ready and here is our numbers for the last day of trading this week......

Crude oil was slightly higher overnight as it extends this week's trading range. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term. If March renews the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 89.14 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 20 day moving average crossing at 90.20. Second support is the 10 day moving average crossing at 89.14. Crude oil pivot point for Friday morning is 90.86.

Natural gas was steady to slightly higher overnight as it consolidates below key resistance marked by the 20 day moving average crossing at 4.463. Stochastics and the RSI are oversold but are neutral hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 4.463 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. First resistance is the 20 day moving average crossing at 4.463. Second resistance is the reaction high crossing at 4.601. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Friday morning is 4.386.

Gold was lower overnight as it consolidates some of Thursday's rally. Stochastics and the RSI are bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1354.45 are needed to confirm that a short term low has been posted. If February renews the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 20 day moving average crossing at 1354.45. Second resistance is the reaction high crossing at 1394.70. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Friday morning is 1345.00.


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The Gold and Oil Guy......Are Stocks and Gold Set to Move Higher?

Chris Vermeulen of The Gold and Oil.Com continues to bring us the best market analysis available anywhere. And today he shows us how he is trading this market with one foot in the bull camp and one foot in the bear camp.....

As most sophisticated investors and traders are aware, the U.S. Federal government has run up significant deficits and the long term debt burden is becoming a drain on Gross Domestic Product. That being said, most economists are discussing the possibility of a major decline in the value of the U.S. Dollar going forward as inflationary monetary policy begins to strangle growth. While that view point may prove right over the long haul, in the short run most traders are not likely expecting the U.S. Dollar to rally.

The U.S. Dollar is expected to reach a multi year cycle low in the near future. From the cyclical low, I expect the U.S. Dollar to regain a strong footing and work higher against the crowd. This is not to say that the U.S. Dollar will not eventually decline, but financial markets do not work that easily. Shorting the U.S. Dollar is a crowded trade and Mr. Market punishes crowded trades quite often by pushing prices the opposite of what the heard is expecting. Should the U.S. Dollar find a strong underlying bid, precious metals and domestic equities would feel the brunt force of such a move. While it remains to be seen if the U.S. Dollar rallies, if it does it will catch many traders and economists by surprise and the unwinding of the short dollar trade could unleash a wave of buying that we have not seen for quite some time.

Let’s take a look inside the market.....

Major Index Price Action Over The Past 12 Trading Sessions – Bearish
Below is a table showing the main indexes used for tracking the market. The interesting thing about this data is that the indexes which typically lead the market have been deteriorating for the past 12 days and no one has noticed.

In short, the Nasdaq, Russell and Dow Transport indexes typically lead the market

Every radio station and business channel covers the Dow and SP500 indexes therefor the general public hears the market performance based on the those indexes. The problem here is that the Dow only consists of 30 stocks and the SP500 only holds the top 500 companies which is not a full view of the overall market because there are thousands of stocks listed on the exchanges.

The analysis below can be taken two ways depending which boat you are in… which I will explain in just a minute. The way I see things is a bit of both, I’m not really in or boat or the other....rather I have one foot in each because I have seen the market do things which support both sides (manipulation and measured technical moves) during my 14 years trading.

Ok here are my thoughts/opinions/forecasts.....

Idea #1: Dow and SP500 indexes which 99% of the public use to gauge the market are moving higher on light volume. I feel because these indexes hold the stocks which everyone knows and is comfortable buying that this is the reason why they keep going up while the rest of the market silently erodes. It’s the simple thought that big money is moving out of leveraged positions (small cap stocks, transports, technology) in anticipation of a market correction, and the Average Joe continue to buy into brand name stocks boosting the Dow and SP500 thinking things are peachy.

Idea #2: We all know there is market manipulation, the question is how much of the price action is manipulation and how much is real supply and demand? No one will ever really know and that’s just part of the market and trading we have to deal with as traders. But I know there are traders out there blaming the Feds, POMO, and PPT for pushing the market up month after month. So the question is if these invisible forces manipulating the top 30-500 stock prices by buying them up which naturally boosts the Dow and SP500 indexes to keep everyone bullish on the market?

My thinking is that it’s a bit of both and that a correction is just around the corner.

Gold Miner Stocks Underperform Gold – Not a good sign
Gold stocks today (Wednesday) underperformed the price of gold and are also forming a bearish chart pattern. If this plays out then we can expect another sizable pullback in both gold stocks and the price of gold because this index typically leads the gold.

US Dollar Multi Year Support Trendline
The US Dollar is trading down at a key support level and if we get a bounce and possibly even a rally then we could see a sizable correction in stocks and commodities across the board. As we all know everyone is shorting the dollar, buying gold and buying food commodities…. So it makes sense that all these crowded plays are about to see a major shift. Now this is just my contrarian point of view and those of you who follow my work know I’m not bias in my trading. I just take the market one day or week at a time and play the setups. But you must step back and look at the larger picture and at least give it some thought....

Concluding Thoughts:
In short, the major indexes are moving higher on light volume which is not a strong sign, and other key indexes are pointing to lower prices. The question everyone wants to know is how low will this correction be? The answer to that is that you must play the trend as you never know if a trend will last 2 days or a year. I take the market one day at a time continually analyzing price action.

If you would like to get my detailed reports and daily videos covering my analysis please sign up for my newsletter at The Gold and Oil Guy.com

Chris Vermeulen


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Where is Crude Oil Headed on Thursday?

With all of the news coming out of Egypt and Brent Oil finding a new home above $100 you would think it was no where but up for WTI Crude. But Americans are finding little interest in the news out of the middle east as they are more concerned about weather or not the interstate system in the U.S. staying open then the Suez Canal staying open at this point. Most of the U.S. is being rocked by a severe winter storm and oil inventories continue to rise. Crude oil has moved higher this morning, topping $92 dollars as we go to print. But a quick slash of the magic crayon is still telling us that crude may have put in a double top in the first two weeks of the year and will have to top the January high of 93.46 to force us on the bull bus.

Winter storms or news out of Egypt, we'll still use the same numbers. Here's your pivot, support and resistance numbers for Thursday morning.....

Crude oil was higher overnight and poised to renew the rally off last Friday's low. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If March extends the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 89.12 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 20 day moving average crossing at 90.23. Second support is the 10 day moving average crossing at 89.12. Crude oil pivot point for Thursday morning is 90.91.

Natural gas was lower overnight as it consolidates below key resistance marked by the 20 day moving average crossing at 4.470. However, stochastics and the RSI are oversold and are turning bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 4.470 are needed to confirm that a short term low has been posted. If March renews the decline off January's high, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. First resistance is the 20 day moving average crossing at 4.470. Second resistance is the reaction high crossing at 4.601. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Thursday morning is 4.404.

Gold was slightly higher overnight but continues to consolidate above the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Stochastics and the RSI are neutral to bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1354.60 are needed to confirm that a short term low has been posted. If February renews the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the reaction high crossing at 1349.00. Second resistance is the 20 day moving average crossing at 1354.60. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Thursday morning is 1335.00.


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Crude Oil Cools Off While Gold Never Even Warmed up.....Is Gold Going Lower Yet?

It seems the announcement by Egyptian President Hosni Mubarak to step down by not running for office in September has given commodity traders some reason to take pressure off of oil prices. But where was gold in all of this? Why didn't gold rocket higher like it has during every other middle east crisis over the last 60 years? Despite all the turmoil in Egypt and the Arab world, gold has stubbornly refused to rally. This probably causes great concern amongst the gold bugs and the folks who are bullish on gold. As we have mentioned before many times on this blog, "perception is more powerful than fundamentals."

While the gold permabulls argue that the market is being manipulated, we are more realistic and respect what the market is actually doing. The big question on everyone's mind is....Why are food prices and other commodity markets soaring, while gold is plummeting into the $1,330 area? Our best estimation at this point in time is that we are going to see more sideways action and probably some recovery from current levels. However, we would like to see some concrete evidence that the market has actually put in a low and that we will see a recovery in this yellow metal in the future.

In todays short video, we explained what we mean and show you some concrete examples of our strategy and how to make money on this move lower in gold. And of course we have your pivot, support and resistance numbers for crude oil, natural gas and gold for Wednesdays trading......

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Crude oil was higher overnight as it consolidates some of Tuesday's decline. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If March extends the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 88.88 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 20 day moving average crossing at 90.20. Second support is the 10 day moving average crossing at 88.88. Crude oil pivot point for Wednesday morning is 91.18.

Natural gas was higher overnight as it consolidates some of the decline off January's high. Stochastics and the RSI are oversold and are turning neutral to bullish hinting that a short term low might be in or is near. Closes above the 10 day moving average crossing at 4.481 are needed to confirm that a short term low has been posted. If March extends the decline off January's high, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. First resistance is the 20 day moving average crossing at 4.469. Second resistance is the 10 day moving average crossing at 4.481. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Wednesday morning is 4.364.

Gold was lower overnight but continues to consolidate above the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Stochastics and the RSI are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1356.90 are needed to confirm that a short term low has been posted. If February extends the decline off January's high, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 10 day moving average crossing at 1337.50. Second resistance is the 20 day moving average crossing at 1356.90. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Wednesday morning is 1336.80.

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Knowing Your Oil Companies Pays Off Big in These Geopolitical Events

Everyday, day in and day out we push the importance of the fundamentals, the numbers. But this weeks events reminds us that doing your home work and knowing where big oil companies and oil services companies are invested pays off big. Where does their risk lie? Today Dan Dicker from The Street .Com gives us some ideas on who is at risk and how he is trading the Egypt unrest. One company he mentions is Apache who does a large percentage of their business in Egypt. Just click here to get a free trend analysis for Apache.



Here is your pivot, support and resistance numbers for Tuesday......

Crude oil was lower overnight as it consolidates some of the rally off last Friday's low. However, stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If March extends the rally off last Friday's low, January's high crossing at 93.46 is the next upside target. Closes below the 10 day moving average crossing at 89.05 would temper the near term friendly outlook. First resistance is Monday's high crossing at 92.84. Second resistance is January's high crossing at 93.46. First support is the 10 day moving average crossing at 89.05. Second support is the 38% retracement level of the May-January rally crossing at 85.51. Crude oil pivot point for Tuesday morning is 91.14.

Natural gas was lower overnight as it consolidates some of Monday's rally. Stochastics and the RSI are oversold but remain neutral to bearish signaling that sideways to lower prices are possible near term. If March extends last week's decline, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. Closes above the 10 day moving average crossing at 4.501 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 4.482. Second resistance is the 10 day moving average crossing at 4.501. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Tuesday morning is 4.390.

Gold was higher due to short covering overnight as it consolidates some of the decline off January's high. Stochastics and the RSI are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1359.10 are needed to confirm that a short term low has been posted. If February extends the aforementioned decline, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 10 day moving average crossing at 1341.00. Second resistance is the 20 day moving average crossing at 1359.10. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Tuesday morning is 1335.10.

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All The Signs are There.....You Can't Ignore Distribution Selling

Here is part 2, the follow up to Chris Vermeulen's "Gold, Silver, and the Dollar....How Does Their Future Look?" article from a couple of weeks ago......

We have seen some exciting moves in the market and with the market sentiment so bullish it should make for a sharp selloff in the coming weeks. Meaning everyone is overly bullish and owns a lot of stocks and commodities therefore the market should top and leave them holding the bag while the smart money runs for the door. The market will not bottom until all of these individuals holding the bag finally cannot take the pain of losing any more money and once we see them panic and sell them all at once only then will we be looking to go long again.

The past couple weeks I have been bombarded with emails asking if gold and silver have bottomed and if they should be buying more on these pullbacks. Those of you reading my work for the past few months know that my analysis clearly has shown how both gold and silver have been topping out. There have been strong distribution selling and price patterns on the charts are also clearly signaling a top was near.

A couple weeks ago I posted an important report covering gold, silver and the US Dollar and where the next big moves will be. Well it’s time for another update on Gold, Silver and the Dollar as they have come a long way from my last report.

Ok let’s move on to today’s charts…

Silver Daily Chart
Silver has formed a very nice looking top and it is now trading under its key moving averages. It is also currently testing a key resistance level after Friday’s bounce on the back of fears in Egypt. Unless something happens internationally I figure silver sill continue its trend down.

Gold Daily Chart
Gold futures are doing the same as its little sister (silver). I feel the general public is still very bullish on metals and before we see higher prices (new highs) the market will have to shake the majority out of their positions first. At this time gold looks like it should test the $1285 level. Depending on how long it takes to get there and the price action it forms in the following days that outlook could change but expect sellers to step in at the $1350-1355 area.

US Dollar 2 Hour Chart
The dollar has been grinding lower the past two weeks forming a falling wedge reversal pattern. It’s also important to note that on the daily chart the dollar tested a key support level last week. This should be an interesting week for the dollar and the rest of the market simple simply because when the dollar makes sharp movements it pushes the price of stocks and commodities around in a big way.

I am looking for a multi week rally in the dollar possibly longer but with small pauses or corrections along the way.

Pre-Week Metals and Dollar Trend Analysis:
In short, I feel gold and silver are nearing a short term resistance level and will find selling pressure in the coming days only to continue on their journey down for a few weeks. The dollar on the other hand broke out of its falling wedge on Friday and could have a strong rally for 2-3 days. I feel most traders and investors have been shorting the dollar for two weeks straight, so once they realize it’s going higher there will be a ton of short covering and the dollar should rip higher.

This shift in the Dollar from down to up has a direct effect on the SP500 and subscribers of my newsletter are going to take full advantage of these next big moves in the market. Just Click Here if you would like to get my daily newsletter and trading analysis and trade exactly what I am trading.

Chris Vermeulen



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Let Them Eat Cake....That Might Be Tough With These Wheat Prices

After an initial pull back crude oil gained some strength overnight as investors seem to consider the Egypt unrest as little threat to the flow of oil through the Suez canal. It is great to play the threat of disruption in our trades but there is little proof that oil and energy is ever effected by these tense situations.

Still, many hedge funds and commercial traders got stuck on the wrong side of the trade last week as the Egypt fiasco unfolded right as many fund managers were peeling back their long crude positions. But maybe the trade we should be talking about is wheat. Wheat is the cause of the tension in Egypt as the population faces food shortages and other governments around the globe are increasing their wheat and rice inventory. Jordan bought 150,000 metric tons of wheat last Thursday and is in the market for more. And Libya did the same, buying 100,000 metric tons of wheat. Many companies in the middle east are selling gold reserves just to fund these massive purchases of wheat and rice.

Have we missed this trade and is a short on wheat in order? Stochastics and the RSI are overbought and are turning bearish hinting that a double top with last August's high might be forming. Closes below the 20 day moving average crossing at 8.03 3/4 are needed to confirm that a short term top has been posted. With everything else that has gone on in wheat in the past year it would take a lot of nerve to sit on a short position in wheat at this point. This may only be the beginning.

Here's your pivot point, support and resistance numbers for Monday morning......

Crude oil was slightly lower overnight before gaining some strength as it consolidates some of last Friday's rally. However, stochastics and the RSI are turning bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 90.12 are needed to confirm that a short term low has been posted. If March extends this month's decline, the 50% retracement level of the May-January rally crossing at 83.06 is the next downside target. First resistance is the 20 day moving average crossing at 90.12. Second resistance is this month's high crossing at 93.46. First support is the 38% retracement level of the May-January rally crossing at 85.51. Second support is the 50% retracement level of the May-January rally crossing at 83.06. Crude oil pivot point for Monday morning is 88.06.

Natural gas was higher due to short covering overnight as it consolidates some of the decline off last Monday's high. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near term. If March extends last week's decline, the 62% retracement level of the October-January rally crossing at 4.225 is the next downside target. Closes above the 10 day moving average crossing at 4.506 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 4.492. Second resistance is the 10 day moving average crossing at 4.506. First support is last Friday's low crossing at 4.252. Second support is the 62% retracement level of the October-January rally crossing at 4.225. Natural gas pivot point for Monday morning is 4.315.

Gold was lower overnight and remains poised to extend this month's decline. Stochastics and the RSI are oversold and are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 1363.20 are needed to confirm that a short term low has been posted. If February extends this month's decline, the 25% retracement level of the 2009-2010 rally crossing at 1296.40 is the next downside target. First resistance is the 10 day moving average crossing at 1343.7. Second resistance is the 20 day moving average crossing at 1363.20. First support is last Friday's low crossing at 1309.10. Second support is the 25% retracement level of the 2009-2010 rally crossing at 1296.40. Gold pivot point for Monday morning is 1332.70.

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How to Trade Last Weeks Market Panic in the S&P 500 & Gold Futures

From guest analyst J.W. Jones of Options Trading Signals.Com.......

After taking a quiet ride upward for some time, the markets finally reminded us what it can do in a flash as precious metals and crude oil have been selling off while the U.S. Dollar Index futures were consolidating. Additionally, the volatility index has been very choppy and was indicating that we could be seeing a potential change in the underlying trend with regards to future price action. In previous articles that I have proffered, I was warning about a likely correction in gold and equities as prices were extremely overbought and both asset classes were due for pullbacks.

Precious metals have been selling off for much of the month of January while equities worked their way higher as technology stocks continued to outperform. Last week we saw major selling in equities while gold, oil futures, and Dollar Index futures rally. What is Mr. Market trying to tell us? Why are the U.S. Dollar Index futures rallying with gold and oil simultaneously? However, the most important question that most traders want an answer to is whether this is a top in equities or if we are just going to have a mild correction and power higher?

Risk is excruciatingly high and Friday’s price action appears to be extremely emotional. I am watching to see if we get the Friday afternoon grind higher in equities that generally is accompanied by light volume. If equity prices are held down today, we may see lower prices in the not-so-distant future. The daily chart of the S&P 500 E-Mini futures contract listed below illustrates the key price levels that traders are likely watching closely:

I remain neutral at this point on stocks as I want to see how the market digests today’s prices before taking a serious position. With short term prices at the current oversold levels, I am expecting a light volume drift higher before Mr. Market tells us which direction he may be headed in the longer term time frame. For right now, I will continue to remain in cash and will wait patiently for low risk, high probability setups to emerge.

Gold
Gold futures suffered from a relatively serious pullback in the month of January. At the close on Thursday, gold was trading around $1,315 per troy ounce. As of the writing of this article gold was trading over 15 points higher on Friday and panic buying was taking place. Gold was extremely oversold on the short to intermediate time frame so a relief rally was expected. However, gold rallying 15 points in the face of an increase in the Dollar Futures on Friday is rather perplexing. The U.S. Dollar Index futures are illustrated below:

There have been times when both gold and the dollar have rallied together in the past, however at this point it is too early to determine what the market is trying to tell us. On one hand, it is obvious that gold needed to bounce to work off oversold conditions. On the other hand, it is rather odd that gold and the U.S. Dollar Index futures are rallying together. My best guess is that traders are trying to game where future money flows are going to be placed if selling persists in the future. It is hard to say for sure if gold will roll over or if this rally is trying to tell us something else.

Currently it is too early to tell, so I will continue to sit on the sidelines and watch the price action. I do not have an edge and the whippy price action in gold futures recently has not offered a solid risk / reward setup. Longer term I expect gold prices to work higher, but in the interim I am unsure of price direction and if selling pressure sets in, how low prices might go. Key support levels in gold futures would be around the 1270-1280 range based on the gold futures chart illustrated below:

For right now, I expect that gold prices could drift higher but the decline may or may not be over. There are extraneous events that could trigger another powerful rally in gold, particularly if panic selling in equities continues and/or an unforeseen event occurs in Europe or the Middle East. I do not currently have a position in gold futures or GLD, but I will be watching the price action closely awaiting a possible trade entry. I will likely look to get long GLD at some point in the future as I expect another rally to transpire in coming months that might push gold to new highs. It is too early to tell what price action is going to do, but for right now I’m going to sit in cash and wait for a solid low risk, high probability setup.

Conclusion
Right now I am sitting in cash and will likely remain that way until we get further confirmation in both the S&P 500 and the gold futures market. It remains to be seen if this is the beginning of a new trend or a possible topping formation in the S&P 500, but what is known for sure is that we have seen heavy volume distribution set in on Friday and panic selling levels have been reached. The marketplace is charged with emotion and the VIX is up more than 20%. This type of environment is not conducive to my style of trading, so I will sit on the sidelines in cash and wait for an entry to take shape.

Gold is also at a rather tricky point on its chart as we have seen a significant rally so far today, but it remains to be seen whether this is the beginning of another powerful rally or whether we are just working off the oversold condition. Sometimes it pays to be patient as a trader and wait for setups which offer a high probability of success while risk levels are mitigated. Right now I’m going to go into this weekend entirely in cash with a smile on my face.

Next week however could offer some interesting trading setups on the S&P 500 and gold futures. Should a quality setup arrive, I will most certainly accept risk and put my trading capital to work. I hate losing trading capital, and price action today is far too emotional to get me involved. I would rather enter positions when the crowd is either sleeping or looking the other direction than invest my hard earned trading capital with them. You can call me a contrarian, but please do not make me hang out with the crowd!

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