Weekend Wrap Video....Calendar Count Down to Debt Ceiling Decision

Adams weekend trading update for the week ending on 7/22/11......

The percentage winner for the week was crude oil which moved up 2.32% and is on the verge of breaking out on the upside. The markets continue to wait and wonder as to what is going to happen with the debt ceiling talks.

It would seem like neither the democrats or the republicans give a hoot about the country, all they seem to be interested in is political gamesmanship and preserving their own power. We are as of today’s taping no closer to getting a debt ceiling deal in place than we were a week ago. UGH!!!

Europe is still in a quandary even though the politicians are trying to save face and save the no win situation in Greece. Imagine the first bailout to Greece didn’t work, so now we are going to loan Greece even more money to pay back. Does that make any sense to anyone?

Its like Greece belongs to this exclusive country club and can’t afford to pay it’s monthly tab or membership fees. Well, guess what, in the real world, i.e. the private sector, Greece would be kicked out of the club, end of story. However, in the world of political make believe and Kabuki theater, we’ll just loan you more of the tax payers money to pay for your dues. Sorry, I forgot it’s Europe’s turn to “Kick The Can Down The Road”.

Let’s take a look at the charts, because unlike politicians, they tell you what is really going on in the world.

So here’s what happened last week in the major markets.....

S&P500 move for the week: +2.19%
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 90

Silver move for the week: +2.00%
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 100

Gold move for the week: +.47%
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 90

Oil move for the week: +2.32%
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 60

Dollar Index move for the week: -1.19%
Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 75

CRB Index move for the week: +.43%
Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 60

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Crowd Behavior Moves Gold, Silver and SP 500…Not The News!

From our partner David Banister at Market Trend Forecast.....

How many times have you scratched your trading head wondering why gold or silver were either rallying hard or dropping hard on seemingly bearish or bullish news? How about the general stock market represented by the SP500 Index? Has it ever rallied when the headlines were horrible or tanked when the news seemed good? Well, welcome to crowd behavioral dynamics and investing!

At my TMTF service, I use Elliott Wave Theory combined with a few other indicators like sentiment gauges and Fibonacci relationships to forecast the coming bottom and top pivots in Gold, Silver, and the SP 500 indexes in advance. In doing so, I often ignore the day’s headlines completely and rarely if ever use them to forecast the next movements in the precious metals or broad stock markets.

Let me give some examples of why you should learn to ignore economic indicators, headlines, and talking heads on CNBC and elsewhere and focus on crowd behavioral patterns. Learning to scale in long when everyone is getting bearish and taking profits when everyone is universally bullish is much easier if you follow Elliott Wave Theory, and apply that theory correctly. If the matter between your ears is unabashedly biased, it will not work… 

One must be objective and open minded to change to survive these volatile markets.

Recently with Gold, we had a major drop from $1557 to $1482 over brief window of time. When I last wrote about Gold several weeks ago publicly, I presented a bullish and a bearish case. I had said Gold must close over $1551, otherwise it may have a truncated top and correct hard. Sure enough, a few days later Gold hit $1557 intra-day and could not get over $1551 on that close. Within days it collapsed and dropped below $1500. How did I know this in advance? Crowd Behavioral Patterns are repeated throughout the markets over and over again and again. Here is the original chart I sent out many weeks ago showing the possible drop:

Gold did end up dropping to the 20 week Exponential moving average at $1480 range, and as it did I noticed a clear “ABC” weekly pattern. Now this is an Elliott Wave pattern that can warn you of an imminent bottom in Gold in this case. In late June, after this major correction I wrote up another chart and showed a potential bottom coming in Gold around 1480, and then on July 5th I confirmed the Bull views on Gold were coming back into play, which you can see with the June 29th chart I did below for my TMTF subscribers:

We were able to adjust our views from short term bearish to moving back to bullish and still catch the big swing in Gold. The precious metal rallied from $1480 ranges to $1610 recently, and now is likely to go through a minor correction to $1568 or so. All of this is the crowd’s action together pushing positions into overbought stages of hysteria, and back to oversold stages of pessimism…I simply track those patterns and try to forecast the next move ahead of the crowd running in or out.

Another sample is Silver as it collapsed from $49 down to $32-$33 per ounce not long ago. After the dust settled I sent out a chart and told my TMTF subs we would likely seeSilver trade in the $34-$41 range for quite a while, before mounting another attack back towards $50. Right now I see Silver soon running to $45-$47 per ounce once it takes a breath. Below is the original early June silver chart I sent to my TMTF subscribers: We had an ABC strong rally which we forecast at TMTF in late August 2010 ahead of time, and once those rallies are over it takes quite a while to work off the sentiment.

Silver has indeed consolidated as forecast for about 7 weeks now between 34-41, having recently hit $40.80 and backed off. I expect Silver to break out over this range soon and attack $60 by year end as possible, but certainly $46-$50 by the fall. Last Wednesday I finally went bullish again based on crowd patterns and told my subs to go long at $37 as you can see below in the chart sent out then with a target of $46 likely coming. The herd of investors had formed yet another ABC weekly pattern, and it was time to go long.

Finally we look at the SP 500 which I forecast on a regular basis as well using Elliott Wave Theory and other indicators. This past week or so we saw a huge drop in the SP 500 and broader markets supposedly on Italy concerns and Eurozone issues. Although I am well aware of these issues, they are used to explain what just happened in the stock market, but not forecast it. Late last week I sent out the chart below to my subscribers and said as long as 1294/95 pivot holds, I remain very bullish on the markets. The SP 500 hit 1295 and has since rallied 31 points in a few days catching everyone off guard. That is Crowd Behavior 101 if I ever saw it!

The bottom line is understanding that the precious metals and broader markets tend to move based on major swings in sentiment from optimistic to pessimistic. The collective psyche of the herd is the most important because we can have periods of very bad news where the market will continue to rally, and also periods of seemingly great news when the market is dropping. The perception of the news of the day and how the crowd decides to react is more important than the news itself! If you’d like to try the TMTF service and take advantage of a coupon as well, go to Market Trend Forecast and check us out. You can also sign up for an occasional but somewhat infrequent free reports.

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Adam Hewison: I Was Thinking This Weekend….

From Crude Oil Trader contributor Adam Hewison.....

Well, Monday is here and we are no closer to solving the debt problem than we were last week. Europe is still a disaster and that’s been reflected in the bank stocks today.

I was thinking this weekend....If everybody moved out of Greece, what would happen to the debt and who would pay it? I know it sounds weird to say, but the reality is with the euro zone you do have the freedom to work in other countries.

The world has changed, yet the politicians still think it’s the same game. In the world of the Internet you can be based practically anywhere that’s advantageous to you. In an example like Greece, which is so far underwater it seems they are never going to be able to bail themselves out....Why not just walk away from the debt? One could stand to reason that most well educated Greeks have the mobility and the language power to move to other countries in the euro zone and work.

Today’s markets reflect what I was saying all last week in regards to the bank stocks which are under tremendous pressure today. BAC is down over 3% and other bank stocks don’t look much better.

Gold and silver moved dramatically high today with gold topping the $1,600 an ounce level before some profit taking came in to the market. Silver is up close to 3% as I write this, and is moving higher and faster than gold percentage wise. So let’s take a look at these markets in more detail and workout some target zones for gold and silver, as well as the banks.
Now, let’s go to the markets and see how we can protect and make your money grow.

S&P 500

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = + 55

The 200 day moving average comes in at 1276 as does a long-term trend line from the lows set in March of 2009. That is the line in the sand for this market. We expect this level to be broken in the coming days and weeks.

SILVER

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 100

Traders should be long this market as all of our Trade Triangles are in a positive mode indicating higher prices ahead. As we have been indicating, we are expecting this market to reach highs towards the latter part of Q3 and early Q4. Look for support for this market at 36.00. The upside target for silver based on the Fibonacci count of 61.8% is $42.98.

GOLD

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 100

Traders who have been listening to my updates should be long gold. Short term traders should have taken the 52 week rule that we mentioned last Friday and have a trading unit on and have some nice profits in hand. We are looking for gold to move higher until the end of Q3 and possibly into Q4. Intermediate targets for gold are $1,642 and $1,650.

CRUDE OIL

Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = – 65
The -65 score indicates that this market remains in a trading range. At the present time, the crude oil market continues to have problems just over the $99 a barrel price point. Our Trade Triangle indicators both long and intermediate term remain negative for this market. Support comes in around $94 a barrel and resistance coming in just over $99. We are looking to buy this market later in the week, given the correct signals.

DOLLAR INDEX

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 100

The Dollar Index has been trapped in a broad trading range for the past two months. The Dollar Index remains below its 200 day moving average. The longer term trend for the Dollar Index is positive based on our Trade Triangle technology. Resistance remains between 76.00 and 77.00. Support comes in today at 74.00.

REUTERS/JEFFERIES CRB COMMODITY INDEX

Monthly Trade Triangles for Long-Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = – 55

The CRB index remains in a broad trading range. At the present time, our Trade Triangle technology is mixed for this index. Resistance is now at 350 and support looks to be at 340.

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The U.S. Dollar, Gold and SP 500 Trend Analysis

The dollar is and has been in a strong down trend for many years and I feel as though it’s getting close to another major land slide. It could take place any time in the next month or so according to my weekly chart analysis.

The general rule is if the dollar falls in value then we tend to see both stocks and commodities rise. The inverse relationship at times can be tick for tick meaning if the dollar ticks down one increment then we see the broad market or specific commodities move in the opposite direction at the same time.

Since 2009 the relationship between the dollar and investments has been so close that if you were to just focus on what the dollar was doing then you could almost trade equities and commodities without reading their charts. The dollar index chart is one of those trading tools everyone should be analyzing. At $80 a month for getting the dollar index data feed it’s not a cheap trading tool…

Dollar Index 4 Hour Candle Stick Chart:
This chart clearly shows this month’s price action for the dollar which is pointing to lower prices if things play out according to the charts. This short term chart shows that in the next day or so we should see the US dollar start to sell back down.

SP500 Daily Chart (Stock Market):
The SP500 index is a great barometer of what the overall stock market is doing. The chart below shows the 5 and 14 day simple moving averages and their recent crossovers.

Last Friday we had a bearish crossover and if the market does not rally early in the week then I am anticipating further weakness in stocks. While I am still bullish on stocks as of this moment the coming week will quickly tell us what stocks are going to do. If we get a bounce which turns into a strong follow through rally then we should see a sizable rally around the corner and also a falling dollar.

Gold Weekly Chart:
Back in May when gold was hit with strong distribution selling I posted my thoughts on how gold could be forming a 6-12 month topping pattern and how price could get choppy. Well, we are now entering that period which could prove to be interesting…

Keep in mind this is a weekly chart and from the looks of things this top could play out for another 5-6 months from here. Silver is in much of the same predicament but trading way below its May high. I’m thinking more of a double top in silver over the next few months.

Weekend Trend Trading Conclusion:
In short, I am bearish on the dollar for a week or so which should help boost stocks and commodities. After that we could see all investments make some big trend changes if buyers don’t step up to the plate to buy. If we any major headline news about the sky is falling then it could trigger a sharp correction. Unfortunately, at this time head line news is running wild spooking investors from buying much of anything other than gold. Any resolution to foreign economic issues will put pressure on both gold and silver and likely help boost stocks.

The past month I have been very cautious because the market is wound up and ready to explode in either direction. During times like this I prefer to stay mostly in cash until I get low risk setups and a clear trend.

Check out Chris Vermeulens trading methods and trade set ups at The Gold and Oil Guy

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Prepare Yourself For Increased Volatility Ahead Next Week

The precious metals markets continue to be on fire with silver jumping another 7% on top of a 8.35% gain the previous week. Gold closed the week on an all time high on Friday. Both gold and silver are reflecting the general fear that is prevalent in the markets. For the week gold put in a solid + 3.19% performance. You should be long one trading unit of gold based on our 52 week, weekend trading rule. We’re expecting this market to open higher on Sunday in the Far East, and also on Monday when the markets open here in the States.

The S&P 500 was not blessed with gains for the past week and dropped just over 2% for the week. We now have very clear battle lines drawn between the Bulls and the Bears. The 1276 level on the S&P 500 is where the 200 day moving average comes in this week. In addition to the 200 day moving average, we also have a long term trend line going all the way back to March of 2009. These are two key levels to watch this coming week.

In other markets the CRB and dollar index showed very little movement as they continue to be range bound. Crude oil appears to be treading water at the moment and has significant resistance overhead at $99.50 basis the August contract.
Watch video here

So here’s what happened last week in the major markets....

S&P500 move for the week: -2.05%

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = + 85

Silver move for the week: +7.06%

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 100

Gold move for the week: +3.19%

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 100

Crude Oil move for the week: +.78%

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 55

Dollar Index move for the week: +.06%

Monthly Trade Triangles for Long-Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Negative
Combined Strength of Trend Score = + 75

CRB Index move for the week: +.84%

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short-Term Trends = Positive
Combined Strength of Trend Score = + 60

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EIA Report: U.S. Dependence on Oil Imports Has Been Reduced

The U.S. imported about 49 percent of the crude oil and refined petroleum products that were consumed during 2010, the U.S. Energy Information Administration (EIA) noted in a recent brief on the issue.

About half of these imports came from the Western Hemisphere, EIA said, adding that U.S. dependence on foreign petroleum has declined since peaking in 2005.

Canada is the United States' leading crude oil supplier, EIA reported.

CONSUMPTION, PRODUCTION AND IMPORT PATTERNS

The U.S. consumed 19.1 million barrels per day (MMbd) of petroleum products during 2010, making it the world's largest petroleum consumer, EIA said.

The U.S. was third in crude oil production at 5.5 MMbd. But since crude oil alone does not constitute all U.S. petroleum supplies. " . . . [B]ecause crude oil expands in the refining process, liquid fuel is captured in the processing of natural gas, and there are other sources of liquid fuel, including biofuels," EIA observed, reporting that these additional supplies totaled 4.2 MMbd in 2010.

In 2010, the U.S. imported 11.8 million barrels per day (MMbd) of crude oil and refined petroleum products. The U.S., however, also exported 2.3 MMbd of crude oil and petroleum products during 2010, so net imports (imports minus exports) equaled 9.4 MMbd, EIA noted.

Petroleum products imported by the United States during 2010 included gasoline, diesel fuel, heating oil, jet fuel, chemical feedstocks, asphalt, and other products. Still, most petroleum products consumed in the United States were refined here. Net imports of petroleum other than crude oil were 2 percent of the petroleum consumed in the United States during 2010, according to EIA.

ABOUT HALF OF U.S. PETROLEUM IMPORTS FROM WESTERN HEMISPHERE

Of the total crude oil and petroleum product imports, 49 percent came from the Western Hemisphere (North, South, and Central America, and the Caribbean including U.S. territories) during 2010. About 18 percent of U.S. crude and imports of crude oil and petroleum products come from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates. The U.S.' largest sources of net crude oil and petroleum product imports were Canada and Saudi Arabia, EIA said.

RELIANCE ON PETROLEUM IMPORTS HAS DECLINED

U.S. dependence on imported oil has dramatically declined since peaking in 2005, EIA emphasized.

"This trend is the result of a variety of factors including a decline in consumption and shifts in supply patterns," EIA said, continuing: "The economic downturn after the financial crisis of 2008, improvements in efficiency, changes in consumer behavior and patterns of economic growth, all contributed to the decline in petroleum consumption. At the same time, increased use of domestic biofuels (ethanol and biodiesel), and strong gains in domestic production of crude oil and natural gas plant liquids expanded domestic supplies and reduced the need for imports."

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Gold, Silver and Crude Oil Shows Signs of Strength

The past couple months (May and June) have been tough on precious metals and crude oil. But recent price action shows that buyers are stepping back into the market buying up these commodities once again.

Let’s take a quick look at the charts…

Gold Futures Daily Chart:
As you can see from the chart below, gold is making a new high. The big question is if it will do what it has done many times in the past, which is make a new higher for only a few days to get the general public (herd) long, only to then get sold into and come back down? The next few sessions will give us a better feel for this breakout/rally.

Silver futures Daily Chart:
Silver on the other hand has not performed as well as its yellow sister. Rather we are seeing a base being formed. The exciting thing about base patterns is that the larger and longer the base takes to form, the larger the potential move once a breakout occurs.

Crude Oil Hourly Chart:
Crude oil looks to be forming a base and or inverse head & shoulders pattern. Both these patterns point to higher prices with a price target around the $110-112 area.

Mid-Week Trend Report:
In short, I feel commodities are now in the spot light and where investors will be looking to put their money to work over the next couple weeks as the falling dollar directly helps boost their prices. The equities market continues to be volatile with large waves of buying and selling almost hitting the them every trading session. During key pivot points in the market we know pricing for investments get a little crazy at times and we manage positions accordingly and anticipate some moves.

That’s all for now, but if you would like to get our pre-market video analysis each morning and intraday updates along with trade alerts be sure to join our premium service at The Gold and Oil Guy.Com

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Markets Hit Record High Prices For Gold!

The big news today has got to be record high prices for gold. As you know we’ve been very positive on this market longer term and we believe that the market was going to make its highs at the end of Q3. Today’s action certainly confirms that this market is moving from a very powerful energy field, which we have explained in many of our previous videos. Silver followed suit, but has not made an all time high. Percentage wise today’s move in silver is beating out the move in gold.

The rally in the equity markets is not as unexpected, as we thought that we would see a bump up as we described in our previous videos earlier this week. We expect that the current rally in the S&P will run out of steam right around 1333 to 1338.

We also suspect that this market is building the right shoulder of a massive head and shoulders top. It seems hard to believe that the precious metals and the equity markets are all going up at the same time, but that’s what’s happening right now.

Now, let’s see how we can protect and make your money grow......

S&P 500

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85
The symmetry of the S&P is striking and should not be ignored as we could be making a right shoulder of a much larger head and shoulders formation. The Trade Triangles remain in a positive mode and we are expecting resistance around the 1333 to 1338 levels. Look for support to come into this market around the 1313 level.

SILVER

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 100
Long-term and Intermediate term traders should now be long this market. We still believe that silver can go higher. Look for support into this market at 34.75.

GOLD

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 100
Record high prices for gold and we continue to believe that gold is building a long term energy field to go much higher later in the year. Long-term trends with the Trade Triangles are positive along with intermediate term trends which are now positive.

CRUDE OIL

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 55
The $99.50 level is an important resistance level for this market. Overall the Trade Triangles continue to reflect a mixed trading range environment.

DOLLAR INDEX

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 75
This index remains below its 200 day moving average. The longer term trend for the dollar index is positive based on our Trade Triangle technology. Resistance remains between 77.00.

REUTERS/JEFFERIES CRB COMMODITY INDEX

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 70

This index flashed a weekly green Trade Triangle today and remains over its 200 day moving average. We expect that we will see more backing and filling in this market before it starts to move higher. Look for support at 340 and again at 338.50. Major Resistance at 352.

As always, we rely on our market proven Trade Triangle technology for catching the big moves. Here's a video update for Wednesday July 13th.

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Learning How To Trade The GDX Fibonacci Butterfly

One of the many useful characteristics of options is that the astute trader can design strategies to capture profit from predicted price action forecasts from a wide variety of technical indicators. I think it is helpful to have knowledge of several approaches to technical analysis in order to recognize patterns that other traders may not see.

Today I would like to introduce the topic of a technical pattern that is not commonly discussed and demonstrate its ability to give a high probability trade in a liquid underlying, the Market Vectors Gold Miners ETF, symbol $GDX.

The basis of the trade I would like to discuss is that of a Fibonacci butterfly, in this case, a bearish Fibonacci butterfly. This pattern is derived from price relationships and the proclivity of these relationships to form predictable zones of price resistance and reversals.

The subject of the Fibonacci sequence, its origin, and potential applications is well beyond the scope of this posting. Suffice it to say that the numerical relationships found within the Fibonacci series have wide distributions across a host of natural relationships. For those interested in learning more about these relationships and their derivations, any internet search engine will point to a huge trove of supplementary information.

The Fibonacci butterfly was best described initially by legendary trader Larry Pesavento. It represents one of two well defined Fibonacci reversal patterns that include both the Gartley and the butterfly. For those traders just beginning to wrap their heads around option terminology, I should point out that this butterfly is completely unrelated to the family of butterflies an option trader may elect to use as a trade structure choice. Don’t let your butterflies get confused!

These are reversal patterns and identify high probability areas of change in price direction. The pattern is stereotypical and consists of: an impulsive initial move in price, either up or down, often including gap movement (the X:A thrust) ; retracement of that initial move (A:B counterthrust) to the 0.618 to around the 0.786 Fibonacci level; retracement of that retracement (the B:C secondary thrust); and the final retracement (the C:D counterthrust) which results in completion of the pattern.

The final C:D leg for a butterfly pattern completes when price reaches the zone between 1.272 and 1.618 Fibonacci extension of the initial price movement. Once this final C:D leg has completed within this defined Fibonacci zone, the predicted price movement is in the direction of the initial X:A movement.

It is important to await confirmatory triggers prior to initiating trades from these patterns because these patterns may fail and failed patterns very often lead to explosive moves in the direction of the failure.

Now, if your head has not yet exploded, and you are still reading, it is much easier to understand with a picture.

The horizontal lines with numbers represent the various Fibonacci retracement levels that are important. For this pattern, focus on the B point a bit above the 0.786 retracement of the initial thrust, and the D point of pattern completion between the 1.272 and 1.618 levels. These Fibonacci tools are present in all modern charting packages and make calculation of critical levels instantaneous.

Triggers usually are taken from the next lower time frame. In this case, dropping from the illustrated 60 minute time frame in which the pattern completed, a bearish engulfing candlestick completed on the next 30 minute candle. The bearish trade was triggered.

The next decision was the option structure that would be most efficient to capture the expected move. A major factor to consider in this decision was that the July options cycle was only 9 days from expiration. The worst performing trade was to buy out-of-the-money puts because of the rapid time decay the position would suffer.

I also considered a put butterfly structure, but knew that adverse price action this close to expiration could be difficult to withstand. Remember that butterflies react strongly to price change close to expiration because gamma becomes quite large. Another structure I considered was that of a calendar trade, selling the weekly option and buying the monthly.

In the end, I decided to use the structure of a put vertical illustrated below. In this case I used a conservative structure, buying an in-the-money put, the 58 strike, and selling an at-the-money 56 strike. The chart below illustrates the profit and loss of a spread constructed in a 10×10 (10 Long July GDX 58 Puts / 10 Short July GDX 56 Puts) setup.

The trade did not last long; I closed it approximately 24 hours later on stronger than expected price action and failure to get rapid follow through on the completed bearish butterfly pattern. The result of the trade was a return of 16.5% on invested capital.

Recognition of patterns not routinely followed by the investing herds can often lead to solid risk / reward trades. Using options in a knowledgeable fashion to structure these trades can further increase your probability of success.

Take a look at J.W. Jones website Options Trading Signals.Com  today for a 24 hour 66% off coupon and get J.W.'s call in your inbox and so much more!

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U.S. Dollar Could Send Stocks and Commodities Higher

It’s been an exciting couple months as stocks and commodities have moved like they are a roller coaster at a theme park. We all know every good roller coaster has a few monster hills which make their clients scream in fear/excitement that’s what it’s all about!

But if we step back into the financial world where fear/excitement cost people month it is not so fun. Look at the US Dollar index you will see three monster hills which investors/traders have just finished riding. These quick price movements were enough to make most traders hit the sell button in fear of wilder price action. This is the type of price action which can whip-saw traders in and out of positions for several back to back losses.

Having multiple losing trades back to back triggers a series of events causing most traders to lose large percentages of their trading capital.

First the trader starts to become frustrated and starts second guessing themselves. This causes revenge trading meaning they start to trade more frequently without proper setups and risk reward levels. Which lowers their confidence, while increasing the rate of their trading. This generally makes for a blowout trading session or week. Meaning they lose 20-50+% of their trading capital in a very short period of time all because they are trading off pure emotions and not clear trading rules.

Avoiding roller coaster rides with your trading capital/emotions is one of the things I do well. I do this by focusing on the US Dollar index because it plays a very large roll in what both stocks and commodities do. I analyze the dollar trends and use its price action to help gauge how big and long its next trend is. If the dollar index looks as though it may top, then I will be looking to buy/ accumulate some stocks and commodities simply because a falling dollar helps boost the value of stocks and commodities.

Take a look at the dollar index below. Just a quick glance and you get a gut feeling that it’s trying to top and could have another sharp sell off in the next 1-3 days.

Now if we take a look at the SP500 daily chart and use the dollar index analysis above, I would expect to see stock prices pause or pullback for a few days while the dollar tops and then look for a reversal pattern on the shorter time frame charts to add more to our position before stocks continues higher.

Looking at the price of gold we can see that it has been trading in a large sideways range since May and also near a resistance trend line (red line). We could easily see a 1-3 day pause/pullback in gold while it builds energy for another surge higher. Which could take it through the resistance level.

Pre-Week Market Trend Analysis:
In short, we feel the dollar is trying to put in a top which could take a few days to play out. If that unfolds then we should start seeing stocks pullback to support levels and then bounce with rising volume.

That’s all for now, but if you would like to get our pre-market video analysis each morning and intraday updates along with trade alerts be sure to join my premium service at The Gold and Oil Guy.Com

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