J.W. Jones: Is The S&P 500 on the Verge of a Big Rally

Only 5 short months ago the S&P 500 was trading at the 2011 highs around the 1,370 price level on the S&P 500 Index. Since then, the price action has devastated investors and traders alike. As of the close on Monday, the S&P 500 had worked over 270 handles lower in 5 months. The price action since September 27^th has been a bloodbath.

It is true that the S&P 500 could be carving out a double bottom on the daily chart, but I am of the opinion that there may be more work to do to the downside. We are oversold on the daily and weekly price charts, but I have yet to see the kind of panic level selling that typically precedes a price reversal. The chart below illustrates the number of stocks that are currently trading above the key 50 period moving average:



While most market participants are concerned about a trap door that causes prices to cascade lower, I am concerned that at some point news will come out that could rip the bears’ faces off. The majority of retail investors are running for cover. The sentiment levels are decidedly bearish and the last thing most traders are looking for is a rally. The contrarian trader in me cannot deny that a rally would do a lot of damage in the near future, but Mr. Market needs to suck in a few more bears in order to do the most harm.

One sound bite out of Europe could alter the price action almost instantly in favor of the bulls. The ECB could suddenly cut interest rates or announce that Eurobonds are going to be made available. Either two headlines or a combination of both headlines would most likely drive prices significantly higher.

After the nasty downside probe today, there are layers of buy stops above current price levels. If price worked high enough, the stops would be triggered and an all out rally could play out. Anything coming out of the Eurozone that appears to be either stimulative or that appears to push an ultimatum out on the time spectrum will be viewed as positive.

Often news and price action play out together at key support/resistance levels and it would make sense that some form of announcement will be made when the S&P 500 price is sitting right at a long term support level. As can be seen from the weekly chart of the S&P 500 Index ($SPX) below, the 1,008 – 1,050 price level is of critical importance.



The primary support levels I am watching on the S&P 500 if it continues lower are the 1,080 price level which should act as short term support. If that level breaks the 1,050 area will become a major support level that bulls will likely defend fervently. Additional long term support will come in around 1,008. I would be shocked to see the S&P 500 push through both the 1,050 and the 1,008 price level on the first attempt, but stranger things have happened.

If price works down to the 1,008 – 1,050 support zone it would not be shocking to see a strong reversal higher. With the recent carnage we have seen in the S&P 500, I find it hard to believe that we could see another 10 – 15% more downside before a reversal plays out. The 1,008 – 1,050 price zone seems ripe for a test, but one other scenario would be a test of the 1,080 support zone that fails intraday and by the close is regained. The chart below illustrates the two most probable scenarios:



Financial markets do not offer a sure thing, however it is without question that bulls will aggressively defend the 1,008 – 1,050 price level on the S&P 500. If that level fails, the price action is going to get far worse and an all out crash could be underway. For now, I am of the opinion we are within 7% – 8% of an intermediate term bottom which could produce a strong multi month rally into the holiday season.

As always anything could happen, but traders need to keep their eye on both sides of the price action. A rally would do a lot of damage to the bears as well as the under invested retail traders and investors. Ultimately the price action is in the hands of Mr. Market, but it is a well known fact that Mr. Market likes to trap traders and inflict pain on as many market participants as possible. A forthcoming rally  would offer yet another opportunity for a lot of traders to eat another slice of humble pie.

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Crude Oil, Natural Gas and Gold Market Commentary For Tuesday Morning October 4th

Crude oil was lower overnight and trading below key support marked by August's low crossing at 76.61. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near term. If November extends last week's decline, the 75% retracement level of the 2009-2011 rally crossing at 72.20 is the next downside target. Closes above the 20 day moving average crossing at 84.56 are needed to confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 80.70. Second resistance is the 20 day moving average crossing at 84.56. First support is the overnight low crossing at 75.84. Second support is the 75% retracement level of the 2009-2011 rally crossing at 72.20. Crude oil pivot point for Tuesdays trading is 77.83.

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November Henry natural gas was slightly lower overnight as it extends the decline off June's high. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near term. If November extends the aforementioned decline, monthly support crossing at 3.225 is the next downside target. Closes above the 20 day moving average crossing at 3.874 are needed to confirm that a short term low has been posted.

First resistance is the 10 day moving average crossing at 3.752. Second resistance is the 20 day moving average crossing at 3.874. First support is Monday's low crossing at 3.591. Second support is monthly support crossing at 3.225. Natural gas pivot point for Tuesdays trading is 3.636.

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December gold was higher in overnight trading as it rebounds off last week's low. Stochastics and the RSI have turning bullish hinting that a short term low might be in or is near. Closes above the 20 day moving average crossing at 1740.20 are needed to confirm that a short term low has been posted. If December renews this month's decline, the 38% retracement level of the 2008-2011 rally crossing at 1476.20 is the next downside target.

First resistance is the 10 day moving average crossing at 1661.50. Second resistance is the 20 day moving average crossing at 1740.10. First support is last Monday's low crossing at 1535.00. Second support is the 38% retracement level of the 2008-2011 rally crossing at 1476.20. Gold pivot point for Tuesday morning is 1648.20.

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CME Raises Margins on Copper and Platinum.....Should You Be Holding Some Platinum

Dominic Schnider, Head Commodity Research at UBS Wealth Management comments on the latest moves in the commodities space and talks about investment strategy for the short term.




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Crude Oil at the Mercy of Weak Equities and Strong U.S. Dollar

Crude oil started off the day under a great deal of pressure trading below the 77 level before rallying. This market continues to be wrapped around the equity markets in such a way as to reflect their swings both up and down. So of course falling equities and a stronger U.S. dollar index today did pressure crude oil today.

This keeps crude oil bears in near term technical control and intermediate and long term traders should continue to be short the crude oil market. Crude oil finished Mondays regular session closed down $1.80 a barrel at $77.42 today. Prices closed nearer the session low of the day and hit a fresh seven week low.

Crude Oil Trade Triangles......

Monthly long term trends = Negative
Weekly for intermediate term trends = Negative
Daily for short term trends = Positive
Combined Strength of Trend Score = – 90


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Phil Flynn: Default Fears Flop

The weekend just seems longer when you have a long position. Oil traders just couldn't face the weekend as fears about the European banking system caused a late day Friday sell off. Oil Prices dropped a whopping 3.6% as fears that banks will quit lending to each other because of their exposure to European debt rocked traders.

Oil prices almost took out the low tick for the year and despite closing at the lowest level for the year, the price is still holding for now with traders wondering whether Europe has the will and the guts to do what is necessary to save the European bank.

The US is very worried about our banks exposure to the situation and we're asking for more up to date information of the European bank balance sheets. The UK treasury is now saying with fear that there are risks to Britain are they very, very great. And those fears that are spreading hit the commodities like a brick wall.

The market was already wobbly on fears of Chinese slowing after China's PMI fell for the third month in a row which was the first time that has happened since 2009. Weak data out of Germany added to those fears. Now it is up to European leaders to try to restore confidence as they meet this week to discuss a permanent European rescue fund. It will have to be something big and spectacular if they are going to get this market to start believing that Europe can get a handle on this crisis.

In the mean time the market is already seeing the impact of Libyan oil. Not only has the Brent WTI spread come in, but we are seeing the added benefit of OPEC oil output hitting the highest level since November, 2008 and they are now producing an astounding 30.055 million barrels per day.


Keep up with Phil by tuning into the Fox Business Network. You can contact Phil directly at pflynn@pfgbest.com!


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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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