David Banister: The Market Could Soon Bottom and Nobody Knows It

The prevailing universal sentiment is neutral to bearish by advisors and the general investing public.  Who can really blame them given the Euro Zone mess, the potential bank contagion collapse effect, and the weak economic trends both here and overseas.  However, the work I do is almost entirely behavioral based analysis looking at crowd or herd behavioral patterns. 

Right now, things are adding up to a market bottom as early as the October 7^th - 11^th window of time and no later than October 28^th . The figures I have had for a long time are 1088 for a bottom with a possible worst case spillover of 1055-1062 in the SP 500.  We are already eyeing the Gold stocks as bottoming out as well and have begun to nibble and will add on further dips.

Let’s examine some of the evidence and then look the charts as well:

1. Sentiment in recent individual investor surveys had only 25% of those polled bullish. Historically that average is 39% or higher.
2. The volatility index has been pegging  the 43-45 window recently and historically markets have major reversals anywhere from 45-50, with rare cases of that index  going over 50 without a major reversal
3. The German DAX index is carving out what looks like a bottom channel, and if it can hold the 5300 plus ranges, it could be a leading indicator of a US stock market run
4. Seasonally, markets tend to bottom in the September-October window with favorable patterns from November into March/April.
5. Historically, markets tend to correct hard with a “New Moon in Libra” which occurred last Tuesday, the same day the market peaked at 1196 and rolled over hard.  They often bottom with the following Full moon, which is scheduled for October 11^th.
6. Elliott Wave patterns I use indicate we are in the final 5^th wave stage since the 1370 Bin Laden highs, with a gap in the SP 500 chart at 1088 from September 2010 still to fill. That gap happens to coincide as 78.6% Fibonacci retracement of the 2010 lows to the 2011 highs.  It’s also has a 50% Fibonacci correlation with the 1356 high to 1101 swing move this summer.

Bottom line is the SP 500 has withstood a ton of pots and pans and bad news over the past 8 weeks.  The market tends to price in a soft patch in the economy way before it becomes evident in the data. To wit, when we topped at 1370 in May of this year, it was an exact 78.6% retracement to the upside of the 2007 highs to 2009 lows.  The pullback to 1101 is an exact 38% Fibonacci retracement of the 2011 highs and the 2009 lows.  

Markets are not as random as everyone things, and if you can lay out a roadmap in advance and understand where key pivots are, you can swing the opposite direction of the herd and profit quite handsomely.  This is what I do every week at my Active Trading Partners.com trading service; go against the crowd for handsome profits.

Below are two charts showing two likely outcomes in the SP 500 index in the coming several days to few weeks:

Forewarned is forearmed as they say.  If you’d like to stay ahead of the curve on Gold, Silver, and the SP 500 on a consistent basis, take a look at Market Trend Forecast.com, where you can sign up for occasional free reports and/or take advantage of a temporary 33% off coupon to join us!

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Crude Oil Market Commentary For Monday October 3rd

Crude oil is trading lower this morning as it extends the trading range of the past two months. Traders are all but convinced that Greece will default on debt payments, leading the way to slower global economic growth and less demand for fuel. Stochastics and the RSI are neutral to bearish signaling that sideways to lower prices are still possible near term.

If November extends last week's decline, August's low crossing at 76.61 is the next downside target. Closes above the 20 day moving average crossing at 85.13 are needed to confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 81.89. Second resistance is the 20 day moving average crossing at 85.13. First support is last Monday's low crossing at 77.11. Second support is August's low crossing at 76.61. If crude cannot hold the 75.71 level we see a quick move to the psychological 70 dollar level. Crude oil pivot point for Monday morning is 80.32.


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The Three Safe Havens Where Big Money is Going

It seems everyone is looking for a place to put their hard earned money as uncertainty around the globe continues to rise. Oil, Gold, and Silver which have been the hot investments for the past few years took it on the chin over the past month with oil falling 13%, gold dropping 15%, and silver with a whopping 30% decline. We did actually see sharply lower prices, but last week these oversold commodities had a bounce and recouped some of their losses.

It has been a month since I covered the dollar index in detail and back on August 31^st.  I pointed to a potentially large shift in the US dollar. The charts were pointing to a sizable rally which would likely send stocks and all commodities crashing lower. Since then we have seen just that and the so called safe havens (Gold, Silver, Oil) have dropped taking most investment and retirement accounts down with them. I did talk about these so called safe havens a couple weeks back stating my point of view on them.

My Cole’s Note Summary: “I do not consider any investment vehicle a safe haven if it can drop 15% in value within 1-2 days. And I would never put a large position of my account especially a retirement account into these investments if I were over 50 yrs of age.”

So where are the big, smart, and conservative traders putting their money to work?

Let’s dig down and take a quick look at the charts…...

The 20 Year Bond – Daily Chart:

US Dollar – Daily Chart:

Utility Sector (Dividend Paying Stocks) – Daily Chart:

Weekend Trading Conclusion:

In short, I feel both stocks and commodities are oversold but need more time to bottom and we may see a few more days of lower prices in the near future. I see the dollar starting to get toppy on the daily chart and once that rolls over then stocks should bottom along with gold, silver, and oil.

Once equity prices start to bounce I anticipate money to flow out of the safe haven (Bonds) and into stocks where there are much larger potential gains to be had. All this could play out in a couple days so I am keeping a very close eye on everything.

Last week we bought the inverse SP500 etf (SDS) anticipating another surge higher in the dollar which would send stocks down in value. So far we are sitting with a gain of 8.2% and the potential for another 4 – 10% if things play out as I expect. If you would like to receive my daily pre-market trading videos so you know exactly what to expect each session along with my ETF trades be sure to join my free newsletter and get my free book here at The Gold and Oil Guy.Com

Chris Vermeulen

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Are Silver & Copper Prices Predicting a Global Recession?

Chris Vermeulen & J.W. Jones of Options Trading Signals have teamed up to bring us a great article about what falling prices in silver and copper mean to the markets......

Silver and copper have recently been going through their own private bear markets. Since the open on September 1^st, silver futures have sold off by more than 25%. During the same time frame, copper futures sold off by around 24%. Both metals are extremely oversold, but lower prices are still possible.

Are the bear markets in copper and silver an attempt to warn market participants that slower economic condition are ahead? Are equities going to take a huge hit on slower future growth?

The notion that lower copper prices will precede a stock market selloff is generally an unfounded allegation. Recently Jason Goepfert of SentimentTrader.com produced the follow table illustrating the returns of the S&P 500 immediately following a bear market in copper over the past 25 years:

The chart above is additional proof that a massive selloff in copper does not necessarily have a major impact on the returns for the S&P 500. However, I would remind readers that volatility in commodities generally precedes volatility in equities.

Precious metals may be getting close to a possible intermediate term bottom. Silver and copper futures are extremely oversold based on a variety of indicators. However, the key to future price action likely will revolve around the price action in the U.S. Dollar Index.

The U.S. Dollar Index has been ripping higher throughout most of September. The rally in the Dollar is placing pressure on risk assets such as equities, precious metals, and oil. The daily chart of the U.S. Dollar Index is shown below:

So far the U.S. Dollar Index has been held back by the $79 price level which has been acting as resistance, but if prices can breakout above recent highs it would not be shocking to see the U.S. Dollar Index test the 80 – 82 price range in the near future. A breakout would likely put additional pressure on silver and copper prices. The two charts below illustrate the recent correlation between silver and copper prices and price action in the U.S. Dollar Index:

Silver : Dollar Correlation

Copper : Dollar Correlation

Additionally the S&P 500 could break below the August lows and oil could follow suit if the Dollar continues to work higher above recent resistance. If October turns out to be an ugly month for risk assets as pundits have predicted, then the U.S. Dollar will likely perform relatively well in the intermediate future.

Clearly there is political risk coming from Europe which could alter price action in risk assets in a variety of ways. Financial markets are volatile across the board and large intraday price swings are becoming common place.

In many cases the headlines will have more impact than the fundamentals or the technicals in this type of trading environment. However, the longer term support and resistance levels should hold sway even during times of exacerbated volatility. The weekly charts of silver and copper futures are shown below:

Silver Weekly Chart

Copper Weekly Chart

Clearly the price action in silver and copper in late August and throughout September has been ugly. Both metals are oversold in nearly every time frame, however if the Dollar continues to strengthen we could see deeper declines in both silver and copper prices as illustrated in the charts above.

Currently fundamentals and technical analysis cannot be relied upon solely when making trading decisions. However, the longer term support and resistance levels derived from the charts above give informed traders areas that offer solid risk / reward exits for profit taking and entries for those looking to get long silver and copper.

Trading Conclusion:

The data provided above regarding equity returns after a bear market in copper are sufficient enough to state that lower copper prices do not necessarily project lower domestic equity prices in the United States. With that said, the correlation between the price of copper and the IShares FTSE China 25 Index Fund (FXI) is irrefutable. Lower prices recently in copper are directly correlated in the price action of the FXI China Index fund as shown below:

FXI China Index Fund : Copper

The recent price action in the FXI China Index fund is ugly to say the least. As shown above, if the U.S. Dollar continues to strengthen copper, silver, and the FXI will likely continue to trade lower. Clearly the recent price action in Chinese markets is concerning for domestic equity investors, but an economic statement released earlier today is an ominous signal in the immediate future for U.S. equity investors.

On Friday the ECRI (Economic Cycle Research Institute) came out with a statement that the U.S. economy is headed for a new recession that the U.S. federal government cannot prevent. Data is starting to show signs that a new recession is not only possible, but quite likely in the near future. One of the key underlying assets to monitor for future clues about price action in risk assets is the U.S. Dollar. In coming weeks and months, I will be monitoring the U.S. Dollar closely. I think it would be wise if you did as well. Headline risk is increasingly high!

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Adam Hewison: There Is Only One Word to Describe Q3 .... Volatility

It’s here! We’ve reached crunch time for the markets and portfolio managers everywhere. It is not often you have the weekly, monthly and quarterly markets all ending on the same day, but Q3 is playing out to that scenario.

I think there is only one word to describe Q3: volatility. Volatility ruled the markets and has pushed many investors to the sidelines. Conservatively, it is better to be in cash than be long the equity markets at the present time.

I find it hard to believe that some of the pundits say we can go into defensive stocks. My question would be why? Why be in the market when it’s going down? It just makes no sense to me.
The philosophy behind our Trade Triangle Technology is very simple.

We want to be long the market when it is going up and either short or out of the market when it is going down. The reality is the market can only do three things: it can go up, down, or sideways, that’s it! How many things in life do you know that are that simple?

Yesterday, we talked about the major trends in the markets and how important it is to know the direction of the trend for each and every market you have an interest in.

Let's see what our Trade Triangles are telling us about the crude oil market.....

Crude oil has been quite predictable. Tell me what the equity markets are going to do tomorrow, and I’ll tell you what the crude oil market will also do. This market is lower for the quarter and the month, but at the moment is slightly higher for the week. Our Trade Triangles are still indicating a very negative mode and we would not be surprised to see the $78 level tested again. A market close below $80 a barrel today, should be viewed as extremely negative for the crude oil. Intermediate and Long term traders should continue to be short the crude oil market.

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 = – 85

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Musings: Is Capital Discipline Re-emerging in The Natural Gas Market?

The European financial turmoil is roiling global debt, equity and currency markets. These markets in turn are impacting commodity markets and creating significant near term volatility. There doesn't appear to be much direction evident in commodity markets other than their reaction to global events. Weekly changes in crude oil inventories and natural gas injection volumes keep prices bouncing around.

West Texas Intermediate crude oil seems to be bouncing between $80 and $90 per barrel, although a leading oil trader says the price action has established a pattern of lower highs and lower lows leading him to sell crude oil futures every time they rise and buy them when they fall until that trade doesn't work.

The picture for natural gas prices appears less clear. A larger than expected injection of natural gas into storage was reported the week before last while a smaller than anticipated injection last week has kept prices unsettled. Natural gas in storage remains below year ago levels and about in the middle of the five year range. The weekly volatility reflects changes in weather and perceptions of industrial demand trends.

Increased concerns about future economic growth, as highlighted by the International Monetary Fund's reduced forecasts for U.S. and global economic growth in 2011 and 2012. These reduced economic growth estimates suggest the key to any recovery in natural gas prices in the near term will depend on falling supply growth rather than a demand increase......Read the entire Musings article.

Adam Hewison: Do You See the Trees In a Forest, Or Do You Just See the Forest?

There is a saying that goes like this “can’t see the forest for the trees” is a reference to people who get so involved with the details of an issue that they lose sight of the big picture.

If your involved in the markets, it is easy to fall into the trap of just looking at the minute or hourly charts, rather than considering the market as a whole. When you can’t see the market for the minutia, it means that you are deeply involved in a situation, and you are perhaps focusing too much on the inner workings of the market, and not enough on the big trends.

With all of this talk of problems in Greece, defaults, contagion and a host of other problems in Europe, it is easy for traders to get distracted, and not see the forest for the trees.

The most important element in trading in my opinion, is the direction the major trend for that market. It doesn’t really matter what the news is, if the market is doing something else. As traders I believe we have to look at the forest in this case the big trends in the marketplace.

Let’s look at them now: S&P 500 index major trend down. Gold major trend up. Metals major trend down. Crude oil major trend down. Dollar index major trend up. CRB index major trend down.
So, there you have it, all the major trends in all the markets we are dealing with right now.

Everything else is just individual trees, that don’t mean a heck of a lot in the big picture.
It takes a tremendous amount of energy to move a market and change a major trend. This kind of energy normally does not happen in one or two days. As they say in statistics, one data point does not make a trend.

Let's take a look at our Trend Analysis and Trade Triangles for Crude Oil......

As the equity markets go, so goes the price of crude oil. The November contract appears to be having some problems with areas of resistance at the $84.00 and $84.50 levels. With both our long term monthly and intermediate term Trade Triangles in a negative mode we expect this market to have another push down to test the $80 and possibly the $78 a barrel level. While this market is presently higher for the week, it is lower for the month and the quarter. Intermediate and Long term traders should continue to be short the crude oil market.

November crude oil closed up $1.43 a barrel at $82.64 today. Prices closed nearer the session high today as trading has turned very choppy this week. A firmer U.S. stock market and steady U.S. dollar index today did support fresh buying interest in crude. The crude bulls and bears are on a level near term technical playing field.

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 = – 75


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Precious Metals Charts Point to Lower Prices – Look Out!

From Chris Vermeulen at The Gold and Oil Guy......

Over the past week precious metal investors have had a wakeup call from their big shiny nest eggs. Last week’s free fall in both gold and silver spot prices was enough to get investors into a panic. More on this in a minute though…

The fall was triggered by three key factors which caused the powerful move down. The first factor is based on pure technical analysis (price and volume patterns). Because the metals had such a strong run up this summer and prices had moved to far too fast, it is only natural so see price correct back to a normal price level. 

In general any investment that surges in one direction in a short period of time almost always falls back down shortly after. As I stated in my weekly report on August 31^st, “gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”.Three days later gold popped to the new high completing the pattern and was quickly sold off which continues to unfolding as we speak from $1920 down to $1532 in only a couple weeks.

The second factor which I think had the most power behind the drop were the margin requirements changes. This new rule literally overnight caused traders and investors holding to much of the metals in their account to liquidate (sell) their positions without having any say in the matter. That is when the most damage was done to the price of gold and silver.

The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31^st report in detail. Overall, past few years we have seen both gold and silver move in opposite direction of the dollar. I don’t expect that to change much going forward. Back in August the US Dollar was coiling (building power) and it was only a matter of time before it would explode to the up side and rallied. This high probability move in the dollar was what triggered me to exit our long gold positions shortly after. I expected the dollar rally to last a month or more and that means we would see a lot of pressure on equities and metals going forward.

Now keep in mind, if Greece or other countries continue to get worse then we could see the dollar and gold move higher together as they are seen as the safe haven at this time. But with the nature of the two I am anticipating a rising dollar and sideways trading range for gold.

Ok, so back to precious metals investor sentiment…

Last Friday and all of this week I have been getting emails from traders and friends saying they are going to sell their gold and silver because they are concerned metals will continue to fall and because many of them are now losing money after chasing prices higher through the summer. The good news is that one of my best indicators for helping to time market tops and bottoms is to just read my emails and answer the phone. 

During market tops, generally the final month when prices are soaring to new highs every day/week is when everyone contacts me and says they just bought gold or are about to buy more gold cause it’s such a great investment. Once I start getting 2-5 of these messages a day alarms start going off in my head. This works the same with market bottoms. So with everyone now in a panic and selling their positions I feel we are darn close to one if we did not see it already.

Let’s take a look at the charts......

Silver Spot / Futures Price Chart

As you can see on the hard right edge silver is forming a very similar pattern which happened this past spring. I would like to note that this type of pattern is typical with extreme market selloffs as to how they generally bottom. I am anticipating silver trades in this range for a couple months and that we could see lower prices in the near term. But my upside target for silver in the coming few months is the $35-$36 level.

Gold Spot / Futures Price Chart

Gold is doing much the same as silver but I have noticed that when gold falls hard the second dip generally does not make a new low as often. If we do get a new low, all the better for buying on the dip but overall I feel gold should trade sideways for a couple months. My upside target for gold is the $1750-$1775 area.

US Dollar Index Price Chart

The Dollar index is looking ripe for another bounce and possibly another rally to new highs in the coming week. If this happens then we should see the SP500 short position (SDS) which we took Tuesday afternoon (Sept 27^th) to continue rocketing another 5-8% in our favour again.

Mid-Week Trading Conclusion:

In short, I feel the US dollar is going to continue higher and that will put the most pressure on stocks, oil and silver. Depending how things evolve overseas gold could hold up and possibly rise with the dollar.

So far subscribers have pocketed over 40% gains this month using ETFs on the SP500, Dollar and Oil and are holding another winning trade in the SDS etf taking partial profits today. 

If you would like learn more about etf trading and receive my daily pre-market videos, intraday updates and detailed trade alerts which even the most novice trader can follow then join my free trading education newsletter and my premium trading service at The Gold and Oil Guy and take your emotions out of your trading!

Phil Flynn: United They Stand

United they stand, divided we fall and Greece's problems has Europe's back to the wall as divisions, divisions bring us down. So much for the euphoric rally on the hope and promise of a deal to meet Greece's debt obligations as divisions in the Euro Zone is stealing some of that incredible market momentum. This Greek tragedy continues to be a major driving force behind the value of oil and every stock and commodity around the globe.

The most obvious and direct impact on the price of oil is reflected in the value of the dollar. The day before yesterday when the market feared that a Greek default may lead to the end of the Euro Zone the dollar became the safe haven of last resort. The market feared that a breakup of the zone and a Greek default could create the same type of contagion mood the globe felt after the Lehman failure.

We see the market was predicting that an unmanaged Greek default would put the world into a deflationary downdraft. If Greece falls then what about Italy? Would they be next? How about Spain or Ireland? The market feared a freezing of the global economy and banking system as banks would refuse to deal with each other as they tried to determine their exposure to the Greek ruins.

Yet when the EU promised a deal that Europe would stand idly by while the world economy fell apart was well. Stocks and commodities soared across the board and the market now believes that there is no way that Europe would stand by while the global economic system fell apart.

In fact even a Financial Times report that said that a split over the terms of Greece’s second 109 billion Euro bail out developed wasn't enough to shake the confidence in the market that the EU would stand idly by while Rome or Athens burned. The FT said that" as many as seven of the bloc’s 17 members arguing for private creditors to swallow a bigger write down on their Greek bond holdings, according to senior European officials. The divisions have emerged amid mounting concerns that Athens’ funding needs are much bigger than estimated just two months ago. They threaten to unpick a painfully negotiated deal reached with private sector bond holders in July."

Still it did slow the buying as traders wait to see just what kind of deal would be done. We are still waiting.

The return of Libyan oil to the export market brought it the Brent/wti spread. We may have topped of course beware of a quick pop on positive bailout news. The API reported That crude oil increased by 568,000 barrels! Of Course the EIA should show a much larger increase as it catches up with the AP!.The API also showed a massive 4.63million barrel build in gasoline supply. Is anybody driving anymore?

We still feel the low for WTI oil is in for the year but we are nervous!

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Seven Month High in U.S. Dollar Muscles Crude Oil and Commodities Lower

We have been saying that the crude oil market is tied with the equity markets. As the equity markets go, so does crude oil. The November contract appears to be having some problems with an area of resistance at the $84.50 level.

With both our long term monthly and intermediate term Trade Triangles negative, we expect this market to have another push down to test the $80 level and possibly the $78 a barrel level. While this market is presently higher for the week, it is lower for the month and the quarter. Intermediate and Long term traders should continue to be short the crude oil market.

We are just two days short of the end of Q3 and the end of the month. How are these markets going to close for the quarter and for the week? Depending on which markets you are looking at, most markets are lower for the month, with the exception of the dollar index. The dollar index could possibly close at a seven month high on the monthly charts.

One thing is for certain, Europe is not the United States of America. In Europe there are too many areas of national pride for each individual country. I always believed this national trait would act as the Achilles’ heel in a euro zone economy. My view has not changed.

Can the banks be saved? We will let the markets answer that question for us.

November crude oil closed lower on Wednesday as it consolidates some of this week's rebound. The low range close sets the stage for a steady to lower opening on Thursday. 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 86.39 would temper the near term bearish outlook.

If November extends this month's decline, August's low crossing at 76.61 is the next downside target. First resistance is the 10 day moving average crossing at 84.27. Second support is the 20 day moving average crossing at 86.39. First support is Monday's low crossing at 77.11. Second support is August's low crossing at 76.61.

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 = – 85


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