J.W. Jones: What The Social Mood is Saying About the S&P 500

Social mood is absolutely horrible right now. In my experience as a trader I do not recall a similar time frame in my life. Social mood has deteriorated to the point that it would not surprise me to see two grown men come to blows over a fantasy football draft. Oh wait, that happens every year!

In all seriousness, the world seems to be getting more dangerous every day. At this point I think even Mother Earth is socially frustrated as she wreaks havoc all over the world. Earthquakes, droughts, wild fires, famine, hurricanes and the list goes on and on. Politics are as divisive as any time in recent history and the rhetoric is just excruciating. So what does all of this negativity mean for financial markets?

It means that every article is under the microscope and anyone who opposes the view of the writer or speaker reacts with vitriolic commentary that many could conceivable call “hate mail.” People are hurting badly from both an economic and social perspective. You can bet that the current social malaise is going to impact financial markets and I would argue that it already has.

August was a poor month for most investors as the equity indices took a nosedive and sold off sharply. I warned members of my service incessantly to reduce risk ahead of the selloff and I sat in cash as markets were crushed. I received countless emails telling me I was essentially an idiot and Mr. Market was going to kick my backside. Initially they were right, but time proved my analysis prescient.

August was the single best month I have had for members at my service at Options Trading Signals.com. I only placed 3 trades in the entire month. Two SPY trades that were directionally biased to the long side and both produced outstanding profits. I also utilized a time decay strategy for a GLD position which worked out quite well. By the end of the month of August all 3 positions were closed and the gross gain based on maximum risk was over 100%. If a trader risked a maximum of $1,000 on each trade taken at the end of August the trader’s account would have grown to around $2,000.

One of the guys I trade with got his ETF newsletter subscribers in at the bottom for a quick 4.5% bounce then shorted a week later using the SDS inverse etf to catching another 6% on the way down… So as you can see there are many ways to play market volatility

So what is going to happen next? The funny thing is not a lot has changed since my most recent article I

posted back on August 28^th. The following chart below still holds sway in terms of overhead resistance for the S&P 500:

In the same article I wrote the following statement:

“In the short to intermediate term, I believe we will see higher prices and a test of the key S&P       1,220 area or possibly a re-test of the key S&P 1,250 price level which corresponds with the     March 2011 pivot lows. Additional resistance would come in around the 1,260 – 1.270 area which marks the neckline of the recent head and shoulders pattern which triggered the selloff in the S&P 500.”

Unlike many financial writers, I am a trader first and a writer second. I put my money where my mouth was and took a trade that got long based on the analysis I provided readers and members of my service. The following price chart illustrates the resistance level that held the S&P 500′s first attempt to rally:

Those of you who do not believe that technical analysis works are wrong. While technical analysis should not be the only metric used to enter or exit positions, basic support and resistance levels can help traders take profits at appropriate times. In addition, laying out longer term support and resistance levels give traders the ability to place trades in a step or tiered system. Essentially, once a trader has identified support and resistance levels the trade can sell into resistance and add to his/her position near support. Technical analysis provides great exit and entry points for astute traders.

My viewpoint of the S&P 500 has not changed much since August 28^th. I think we will continue to see choppy price action and a retest of the 1,220 level is likely, if not probable. If the SPX 1,220 price level gives way to higher prices a retest of the March pivot lows will be the next resistance point. The March pivot lows correspond directly with the SPX 1,250 price level and the 50 period moving average will be flirting nearby.

If prices continue to work higher the neckline of the head and shoulders pattern which produced the selloff in early August will be tested. The point that readers should take from this is that overhead resistance is extreme at this point. The following chart below illustrates the key resistance levels and the current rising channel on the daily chart.

While it may sound a bit confusing, higher prices in the near term will likely be bearish in the intermediate to longer term. In my previous article, I commented that I believed we had likely entered the next phase of the bear market and I still believe that. At this point in time I am just waiting for the price action to confirm my suspicions.

The first confirmation that the bear market will have returned would be a lower high on the daily and weekly time frame. The final confirmation would occur if prices rollover and breakdown below the August lows. If the August lows are taken out on a daily and/or weekly close an all-out rush to the exits is possible. Ultimately I believe that risk is increasing to the downside if prices keep working higher.

Right now I’m expecting higher prices unless the ascending trendline of the channel is penetrated on a daily or weekly close. Otherwise, the bullish churn higher will continue. The chart below illustrates the key support levels that if broken could lead to additional downside.

I am expecting to see a test of the 1,250 area before the end of September. It is entirely possible to see a test of the neckline as well which would help suck in retail investors who are scared they are going to miss the move back up. A rally that is contained around the SPX 1,250 – 1,275 price levels could result in a sharp sell off.

All eyes are on the key 1,220 price level to the upside and the August lows. A breakout in either direction could result in a big move. If I had to guess, the thrust higher will end in late September or the early part of October, but I would be remiss not to mention that one headline out of Europe could derail my entire thesis.

The two single largest threats to a stock market advance stem from Europe. The European sovereign debt crisis is one key issue that could alter the marketplace by its own merit. A more silent concern for U.S. equity markets is the impact the European situation will have on the U.S. Dollar.

Subscribers of OTS pocketed over 100% return in August alone! So don't wait, Sign up now at Options Trading Signals.com for a 24 hour 66% off coupon.

Adam Hewison: The Markets Voted and it's No Confidence In Obama

It would appear that President Obama’s speech last night was not well received looking at the financial markets this morning.

Readers of this report know that we rely on our Trade Triangle technology for trends, and not what a government official has to say and this includes the president of the United States. I learned over the years that the markets generally tell you what they’re going to do. Price action alone is the greatest truth you can see in the marketplace. Price action is what determines trends, price action is what determines traders actions.

Many newbie traders think there must be some mystical power that drives the markets. The truth is, the market is driven by people who believe prices are you going to go higher or go lower. It is that simple, however, most investors tend to over think the market.

Now I understand that there are folks out there that would disagree with that statement and say that the fundamentals, i.e. supply and demand, earnings etc. etc. is what drives the markets. Yes, there is a certain truth to that, but the other part of the equation is the psychology of the market. Market sentiment or psyche can really play havoc on the fundamentals and that is why price action alone is the best market analyst in the world.

As we go into this weekend with the 10th anniversary of 9/11 looming over everyone’s head It’s important to look at how the markets are closing for the week.

We consider how a market closes for the week to be very important. Did the market make or lose ground for the week? Which way is the monthly Trade Triangles? Did the market close in the direction of the major trend? All of these thoughts are reflected for the most part in the weekly closing price of any market. That’s why we concentrate and bring to you our weekend updates, which allows you to see the big picture and not the minutia of every tick.

Let's look at Crude Oils price action........

The Crude Oil market once again backed off from the $90 a barrel level which we have talked about as being resistance for this market. The Williams % R is setting up for a negative divergence to the downside. Crude Oil reversed itself from the top of its Donchian trading channel yesterday. The monthly Trade Triangle is still negative for this market. We look for Crude Oil to continue to move in a sideways pattern much like it did for most of August. The longer term monthly Trade Triangle must be given more weight than either the daily or weekly Trade Triangles.

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

Check out todays video that covers all 6 markets that Adam follows.....

Unlimited access to this and other trading videos FREE! Click Here!

Sharon Epperson: Where is Commodities Headed Next Week?

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

Obamas "More Debt" Speech and Fridays Oil Numbers

It's looks like traders view President Obamas new "stimulus" plan, yes we'll say it, for just what it is, more debt. Crude oil traded lower in Thursday evenings overnight session consolidating some of Wednesday's rally putting oil into overbought territory.Oil prices are diverging but are neutral to bullish signaling that sideways to higher prices are possible near term. If October extends the rebound off August's low, the May-July downtrend line crossing near 92.45 is the next upside target.

If the oil bulls expect to maintain any of this momentum they will need to defend 83.20, And closes below Tuesday's low crossing at 83.20 would confirm that the rally off August's low has ended. If October renews the decline off May's high, the 75% retracement level of the 2009-2011 rally crossing at 71.73 is the next downside target.

First resistance is Wednesday's high crossing at 90.48. Second resistance is the May-July downtrend line crossing near 92.45. First support is Tuesday's low crossing at 83.20. Second support is the reaction low crossing at 82.95. Crude oil pivot point for Fridays trading is 89.23.

EIA: This Week In Petroleum....The Latest Twist in Crude Oil Price Patterns

Since the beginning of the year, a defining feature of the oil market has been the apparent "disconnect" between prices for West Texas Intermediate (WTI) and those for other crude oil grades. Prices for WTI have been trading at an ever widening discount to those of other grades, such as North Sea Brent, a close WTI look-alike in terms of gravity and sulfur content (Figure 1). The WTI futures curve and that of Brent futures also have parted ways: WTI futures remain in contango, meaning that prices for nearby contracts trade at a discount to those for later delivery, while Brent futures have swung into backwardation (prompt barrels trading at a premium to deferred ones). Recently the discount of WTI futures to Brent futures, a closely watched market indicator, has reached a record-high level. EIA's newly released Short-Term Energy Outlook (STEO) expects a large WTI discount to persist through the end of 2012. Recent market developments, however, warrant a fresh look at its likely causes.

Historically, periods of WTI discount versus Brent have generally been associated with a buildup in inventories at Cushing, OK, the delivery point of the NYMEX crude futures contract. It was thus not surprising that the recent widening of the WTI discount initially coincided with an unprecedented buildup in Cushing crude stocks (Figure 2), thanks to both surging domestic and imported crude supply in the Midwest and a significant expansion of local storage capacity. Seeking to explain the price discrepancy between Cushing and other crude grades, analysts pointed to a lack of pipelines out of Cushing that, in effect, stranded rising crude supplies in the landlocked Cushing and broader Midwestern markets, causing stocks to rise.

Also, any increase in the WTI-Brent spread has traditionally been associated with a corresponding shift in the WTI time structure: the spread between front-month and second-month WTI generally closely tracks that between front-month Brent and front-month WTI (Figure 3). That makes sense, given the transit time to move Brent barrels from the North Sea to the U.S. Midwest.

But neither of these features is evident in recent market trends. Far from building further, in line with the widening of the WTI discount, Cushing crude stocks have been falling fast in the last few months. At latest count, Cushing stocks were more than 9 million barrels below their early-April peaks - a reversal in inventory trends that has not stopped the WTI discount from widening further (Figure 2). Meanwhile, WTI "time spreads" - the price difference between prompt WTI barrels and WTI supplies for later delivery - have not kept up with the Brent-WTI spread. The contango in WTI futures has shrunk, with front-month WTI trading at a narrowing discount to the second-month contract, while the Brent-WTI spread has taken off - a development that normally would portend a widening WTI contango (see Figure 3).

Two considerations may help make sense of these somewhat counterintuitive developments. First, it may help to look beyond U.S. inventories and consider the stock situation in Brent's own regional market. As reflected in the steep backwardation in Brent futures markets, the European crude market continues to face very tight supply conditions. The disruption in Libyan crude exports, most of which normally end up at European refineries, drew European crude stocks well below their normal range (see Figure 4). Despite the release of oil from International Energy Agency strategic storage and increased Saudi exports, the tight crude oil supply situation in Europe has blunted the downward price impact of weak economic recovery. Current supply conditions in Europe have had as much impact on the transatlantic arbitrage and Brent-WTI spread as the buildup of excess supply in Cushing.

Second, rising inventories at Cushing should not be seen, in this case, as the exclusive, primary driver of the WTI price discount, but rather as a secondary symptom of underlying transportation bottlenecks. Those bottlenecks, which have been the real root cause of recent relative WTI price weakness, can also manifest themselves in other ways, such as rising transportation costs.

Bottlenecks are not airtight: depending on the pull from other markets, some oil can seep through, but at a cost. Such has been the case of the Cushing storage hub and the broader Midwestern market, from which rail, barge and truck shipments of crude have been on the rise. The greater the pull on Midwest crude supplies, the higher the transportation costs, as the least expensive ways out of the Midwest are tapped first and transportation costs increase for the marginal barrel.

Logistical bottlenecks hindering crude flows from Cushing and the Midwest to the U.S. Gulf Coast can be seen as the primary factor of the WTI disconnect, whether they express themselves through stock builds and an associated increase in marginal storage costs (thus increasing the slope of the contango), or through stock draws and a ramp-up in marginal transport costs (causing "location spreads" to widen). Notwithstanding the recent decline in Cushing inventories as markets resort to premium-cost transportation capacity to move discounted WTI crude, such capacity is itself constrained and may soon be overwhelmed by renewed growth in exports from Canada or regional refinery maintenance. Pipeline companies are going ahead with plans to add capacity out of the region, whether through new, dedicated lines (Keystone XL, awaiting regulatory approval) or by reversing and/or expanding existing infrastructure, as Magellan and others have announced. Until such plans come closer to being realized, or the crude supply balance in Europe significantly improves, the WTI discount will likely persist and perhaps widen further.

Gasoline and diesel prices advance for second straight week
The U.S. average retail price of regular gasoline increased this week, adding almost a nickel to reach $3.67 per gallon. The average price is $0.99 per gallon higher than last year at this time. The largest increase came on the West Coast where prices gained more than eleven cents per gallon over last week; the average price in region is now $3.86 per gallon, the most expensive in the country. The average price in the Rocky Mountain region gained an even four cents per gallon on the week. Moving east, average prices in the Midwest and on the East Coast rose 3-4 cents per gallon. Rounding out the regions, the Gulf Coast saw prices add about two cents per gallon to remain the least expensive in the country at $3.49 per gallon.

Similar to gasoline, the national average diesel price climbed almost a nickel to $3.87 per gallon. The diesel price is $0.94 per gallon higher than last year at this time. The West Coast average diesel price gained more than seven cents per gallon, the largest regional increase for the week. The Rocky Mountains followed, adding more than five cents to last week's price, while the Midwest registered an increase of just under five cents per gallon. The East Coast and Gulf Coast each saw price increases of about four cents per gallon.

Propane inventories level out
Last week, U.S. inventories of propane began to level out as the re-stocking season draws to an end. Total U.S. propane stocks drew slightly to end at 53.6 million barrels. Midwest regional propane inventories decreased by 1.1 million barrels, while Gulf Coast stocks increased by 1.0 million barrels. Rocky Mountain/West Coast regional stocks also grew by 0.1 million barrels, while East Coast inventories drew slightly. Propylene non-fuel use inventories represented 5.5 percent of total propane inventories.

Posted courtesy of the EIA's This Week In Petroleum 

Adam Hewison: President Obama’s Job Is On The Line

Tonight at 7 PM (EST), all eyes will be focused on President Obama and his speech on creating new jobs in America. This is probably one of the most important speeches he will ever give and could mean the difference between keeping or losing his job in November.

So what will this mean to the markets?

So far, President Obama’s words have not helped the markets in the past. It remains to be seen what is going to happen to gold, the equity and futures markets after the president’s speech. We will get an early indication as to how the markets interpret President Obama’s make or break speech during after hours trading and in the futures markets. As always, we will rely on our Trade Triangle technology.

So far today the $90 a barrel has proven to be resistance on the upside in the October Crude Oil contract. What is also disturbing is the fact that the Williams % R is setting up for a negative divergence to the downside, but it’s to early to tell. We will need to have more data to confirm this move. A negative divergence on the Williams % R indicator is as follows: the market makes a new rally high, yet the Williams % R does not follow. This technical situation is also exacerbated by the fact that crude oil is at the top of its Donchian trading channel.

Our Trade Triangles are for the moment mixed, indicating a lack of any serious long term trend. With our monthly Trade Triangle still in a negative mode, we expect that crude oil will continue to move in a sideways manner much like it did for most of August. The longer term monthly Trade Triangle must be given more weight than either the daily or weekly Trade Triangles.

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

Unlimited access to this and other trading videos FREE! Click Here!

Crude Oil Bulls Gain New Strength in Thursday Morning Trading

Crude oil was slightly lower in Wednesday evenings overnight session as it consolidates some of Wednesday's rally. Yesterdays break through 89.90 resistance hints that a rebound from 75.71 has resumed as prices are diverging and are turning neutral to bullish signaling that sideways to higher prices may be possible near term. Stochastics and the RSI are overbought

If October extends the rebound off August's low, the May-July downtrend line crossing near 93.41 is the next upside target. Closes below Tuesday's low crossing at 83.20 would confirm that the rally off August's low has ended. If October renews the decline off May's high, the 75% retracement level of the 2009-2011 rally crossing at 71.73 is the next downside target.

First resistance is the overnight high crossing at 90.11. Second resistance is the May-July downtrend line crossing near 93.41. First support is Tuesday's low crossing at 83.20. Second support is the reaction low crossing at 82.95. Crude oil pivot point for Thursdays trading is 88.66.

Bulls Face Challenge of Strong Resistance as Crude Oil Closes Higher

Crude oil closed higher on Wednesday and above the reaction high crossing at 89.19 confirming that a low has been posted. The high range close sets the stage for a steady to higher opening on Thursday. Stochastics and the RSI are overbought and are turning bearish signaling that a short term top might be in or is near.

If October renews this summer's decline, the 75% retracement level of the 2009-2011 rally crossing at 71.72 is the next downside target. Closes above the May-July downtrend line crossing near 93.57 would confirm an end to this summer's downtrend.

First resistance is last Thursday's high crossing at 89.90. Second resistance is the May-July downtrend line crossing near 93.57. First support is Tuesday's low crossing at 83.20. Second support is the reaction low crossing at 79.38.

CME: Rollover Dates For Equity Index Products

The following provides some important information about the Rollover dates for the suite of Equity Index Products listed and traded at CME Group exchanges.


• The Rollover date is generally defined as eight calendar days before a contract expires for most our equity index futures. This date differs slightly for Nikkei 225 contracts, as the rollover date has historically been the Monday before expiration.

• From the Rollover date on, it is customary to identify the second nearest expiration month as the “lead month” for the index futures, as the nearest expiring contract will terminate soon and will have a less liquid market than the new “lead month” contract.

• For certain contracts traded in open outcry and then traded electronically on CME Globex during the overnight (ETH) sessions, the rollover date will dictate which contract is listed for trading on Globex.

Note: The following contracts have only one contract listed at a time for trading during the overnight CME Globex session (these contracts are not available on CME Globex during the RTH session):

ƒ S&P 500
ƒ NASDAQ-100
ƒ S&P MidCap 400
ƒ S&P SmallCap 600 futures.

Therefore, the rollover date will determine what contract month is listed for trading during the CME Globex session.

For example, if the rollover date is Thursday, June 9, 2011, for the S&P 500 futures contract, the CME Globex session beginning that evening (at 3:30 p.m. Chicago time /CT) will list the Sep 2011 contract for trading and the Jun 2011 contract would no longer be available to trade on CME Globex.

On the trading floor, the Sep 2011 contract will become the lead month beginning at 8:30 a.m. on Thursday, June 9, 2011.

Upcoming Rollover Dates, Quarterly Equity Index Futures Contracts

June 2011 Rollover Dates

• Nikkei 225 futures: Rollover Monday, June 6, 2011 - Expire Friday, June 10, 2011

• All other equity index futures contracts: Rollover Thursday, June 9, 2011 - Expire Friday, June 17, 2011

• Reminder: As previously announced in CME Group Special Executive Report S-5662 from March 16, 2011, CME will delist the E-mini MSCI Emerging Markets futures and E-mini MSCI EAFE Index futures on June 19, 2011, for trade date Monday, June 20, 2011. For more information, please visit www.cmegroup.com/equities.

Sept. 2011 Rollover Dates

• Nikkei 225 futures: Rollover Tuesday, September  6, 2011 Expire Friday, September 9, 2011

• All other equity index futures contracts: Rollover Thursday, September 8, 2011 Expire Friday, September 16, 2011

Questions?
Phone     1-800-331-3332
Email       equities@cmegroup.com

David Banister: Is This Bull Market In Gold Over With Double Top?

A few weeks ago I penned a public article and private forecast for my subscribers calling for a major correction in Gold being due. 72 hours after my forecast, Gold had dropped a stunning $208 per ounce in 3 days catching most by surprise. Why did I forecast a top in Gold then? Why did Gold rally back to new highs recently? Is the Gold Bull Market now over? Let’s see if I can answer those questions with some level of logic below.

I had forecasted a major correction because Gold has had a run of 34 Fibonacci months from October 2008 to August of 2011 from $681 to $1910 per ounce spot price in US dollars. That type of pattern was formed with a clear 5 wave move, with obvious corrections along the way. The reason I was confident of a major correction was due to the confluences of the 34 months of time, the price relations to prior rallies and corrections, and the Fibonacci sequences coupled with the sentiment and cover stories on Gold in major publications. Gold should have entered into a multi-month correction that will consolidate that 34 month move, and the first shot across the bow was the $208 drop in 3 days.

Interestingly, that $208 drop over 3 days corrected 50% of the 8 week move from $1480 to $1910. As we can see markets move very very fast these days and can whipsaw even the best of traders. I told my subscribers to cover their short bets at $1724 spot, and since then we rallied to $1920 this week before topping again.

The reason Gold rallied back and touched the old highs and then some was due to the German Court pending decision regarding the constitutionality of backing the Eurozone countries with bailout funds. Today we had a positive decision by the court denying claims that the bailouts were unconstitutional. Had the German Court ruled the other way, we would have seen Gold spike to $2000 and the SP 500 and European Bourses tank hard. So if you were getting long Gold on this recent rally, you were taking on a lot of short term headline risk and I told my subscribers it was best to stand aside until we got the ruling.

Now that the ruling came out, Gold has topped at 1920 in what typically traders would call a “Double Top” pattern, but it’s more involved than that. 

In the work I do, we call it an “Irregular correction “ pattern, where the retracement of the $208 decline runs all the way back up and past where the decline began at $1910. These are very rare patterns and again, I believe exacerbated by the Eurozone issues as they hinged short term on the German decision. What we should see now is what I call a “C WAVE” to the downside, with targets typically at $1620 relative to the rally from $681 to $1910 over 34 months. A drop of $290 is only 15% from the highs and would fill in gaps in the Gold chart.

Will Gold drop that low? The fundamentals for Gold are screamingly bullish, but the entire world knows that and it may be priced in for a while. Gold should consolidate those topping highs for a while to let the fundamentals catch up the price action in Gold which ran ahead of them and then some. The Gold bull market should run for 13 Fibonacci years, and I have been bullish since November 2001. I understand the fundamentals are very strong for Gold, so please don’t miss-read my comments ore forecast. I use crowd behavior and psychology to help pinpoint major tops and bottoms, and right now we should have some more work to the downside to correct sentiment in Gold and then allow for the base building period before the next leg up towards the highs in 2014.

Over at my TMTF service, we called the top in Gold and shorted it and covered at $1724. We also recently forecasted the deep drop in the SP 500 from 1231 highs and warned our subscribers in advance. My methods use contrarian signals and behavioral patterns to warn of pivot highs and lows in advance. 

Consider checking out David Banisters site at Market Trend Forecast.Com and take advantage of a 33% discount or sign up for our occasional free updates.