The equities market technically still has another day of positive momentum behind it and with a short holiday week higher prices are favored.
This morning in the video I mentioned how oil continues to look untradible because of the sharp news related swings and lack of clear chart patterns. Yesterday it rallied over 2% and today is back down 2%… Steer clear of this beast…
SP500 (broad market) continues to grind sideways/higher today. Volume is very light which bodes well for lower prices in the coming days. I would love to see a Pop-N-Drop tomorrow which is when the index gaps higher at the open into a resistance zone at which point we would be looking to get short (buy the SDS).
Research In Motion shares hit our first resistance level after being upgraded this morning…. Buy the rumor sell the news…? If you are long taking some money off the table here is smart play and to move your stop to break even or better.
Coal sector is looking tasty today and we may take a long position in KOL, but I will update if I do so.
Remember you can now view some of my live charts at stockcharts each day. If you are a member of stockcharts.com then PLEASE follow my ChartList and Vote for it each day so I know its worth me updating for you: http://stockcharts.com/public/1992897
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It is that time in the presidential cycle that gets everyone emotional and concerned with the future outlook of the United States. While everyone has their opinion on whom they think is best for America, I promised myself a long time ago to keep my thoughts to myself for two key reasons. ONE: only 50% of Americans will agree with me J, and TWO: I am Canadian so I do not experience what Americans go through on a daily basis.
My thinking is if Obama wins then we will see Quantitative Easing continue. And with the recent positive economic numbers on Friday it should give some confidence to investors that things are SLOWLY stabilizing (Bullish for Stocks). But, if Romney wins then we could see Quantitative Easing be cut or eliminated which is obviously bad for equities.
So, let’s just jump into the charts of what I feel will unfold in the next few days and months.
Using the season chart of the four year election cycle we can see what the Dow Jones Index has done in past election periods. Obviously every market environment is drastically different in each situation but overall we see stronger stock price. This is naturally a very emotional time for investors but once the election is finished most individuals become more confident simply because there is a leader that has four years to make things better and there is nothing they can do about it now and the campaigning and debating is over.
DIA – Dow Jones Industrial Average – Daily Chart:
Looking at the chart of Dow DIA Index fund you can see a 5-6 month cycle in the market which has a positive skew. Just so you understand what a positive skew is I will explain.
Positive Skew is when the market is trending up making a series of higher highs and higher lows. Because there are naturally more buyers during a bull market each cycle upswing lasts longer then when the cycle down downswing. So you get longer rallies which sends your secondary indicators (stochastics, volatility, put/call ratios, advance decline line etc…) in the overbought levels for extended periods of time. Those trying to pick a top continually get their head handed to them. The focus must be on buying the pullbacks. Keep in mind volatility is higher which meaning risk per trade is higher. Overall in the long run you stand a much higher chance of making money trading with the trend than trying counter trend trades (picking a top).
So as you can see below it looks like the stock market will be trying to put in the bottom over the next week or two which falls in line with our election cycle. It is very important to know that during intermediate cycle lows is where some of the biggest drops take place. These sharp drops are what is needed to cleanse the market one last time to shake as many traders with tight stops out of the market before it reverses and starts the next rally. I would like to see a 1-3 day market sell off as that would be the signature bottoming pattern I like to buy.
Bond Prices – Moving Against the Norm…
Bond investors are some of the most conservative people in the market. They do not like to take risks so they dump their money into bonds to make a tiny profit in exchange for low risk (volatility). The nature of these investors put more money into bonds as we enter the election because they are nervous about not knowing who will be in control of the country.
After the election finished some money flows out of bonds and into stocks because there is now a president and direction for the country. Generally come the new year investors move to bonds as the safe haven as they try to figure out what their game plan is for new year.
So looking forward to this week and the next 2 months I would not be surprised to see bond prices rise or trade sideways while stocks move higher. This analysis is based on Obama winning. If Romney wins then I feel bonds will rally much more and stocks could sell off.
TLT Bond Exchange Traded Fund – Daily Chart:
Here is a chart of 20+ year bonds showing a possible reversal to the upside that could trigger as soon as next week. This chart is forward looking 1 – 2 weeks. Overall the trend remains down but if Romney wins I feel bonds breakout above the red resistance levels and trigger a new uptrend. You can follow my stock charts and ETF charts live every day here: http://stockcharts.com/public/1992897
Election Year Trading Cycle Conclusion:
Next week is going to be very interesting to watch unfold. I generally do not like to trade or invest before news of this magnitude so trade smaller sizes if you do as price action could be wild.
Disclaimer: This material should not be considered investment advice. Technical Traders Ltd. and its staff are not a registered investment advisors. Under no circumstances should any content from this website, articles, videos, seminars or emails from Technical Traders Ltd. or its affiliates be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. Our advice is not tailored to the needs of any subscriber so go talk with your investment advisor before making trading decisions This information is for educational purposes only.
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We did see a nice pop this morning breaking some previous pivot highs from last week and volume looks strong. Long story short… stocks are overbought here very similar to the past two highs as seen in the chart below. The big question from here is what to do now? Well, I wanna see some bullish patterns and volume over the next 12-48 hours if we are going to be looking to get long for an intermediate rally that lasts several weeks taking the indexes to new highs.
Take a look at the 10 minute intraday chart of the past fiveOPEN trading sessions (Wed, Thurs, Fri, Wed, Today) as notice how choppy price has been…. It’s shaking traders up who do not know how to adjust their trading strategy during rising volatility and mixed market cycles. This is something I will be teaching in the near future using my own eSignal trading indicators and Signals as it has been CRUCIAL in the past 3 year to profit from and minimize losses.
Daily Chart of my Cycles & Sentiment Indicator of the SPY:
Yesterday we saw utilities rally as fear worked its way into the market. Well today utilities (XLU) is trading lower. Interesting how the market move and why I love them so much…
Last week I mention how RIMM looked ready for a major breakout and rally. This week it has jumped over 12% which is exciting. The next to pop looks like KOL coal ETF.
One of my members sent an email asking for help and he could not have picked a better time to ask because the market is eating traders alive here…
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MEMBERS QUESTION:
Hi Chris,
In the last week, with the chopping around, I’ve had the bad fortune of being short ES, and multiple times being stopped by a little spike, and then I am watching the market go lower without me.
Last Thursday, I put in a buy stop for 1392, and that got triggered during a spike down yesterday. This afternoon (I live in Singapore), my sell stop of 1417 that had been set last Thursday got hit, and I watch in frustration as ES dipped to 1412 without me.
This has been very frustrating and expensive – so I think I really need a tutorial/advice on setting proper stops.
It almost seems like someone can see my stops (set above or below what I measure to be resistance and support) and literally aims for them to take me out.
Some months ago, when this happened a lot, I stopped using stops completely. Then got badly maimed by the Draghi and Bernanke bounces in September.
Hope this is something you can look at as an enhancement to your excellent service (and I would gladly pay for this).
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MY RESPONSE:
Yes, stops are tough to figure out for sure. If you are getting shaken up as you stated then you are not setting your stops properly. Because of the leverage involved with futures most people put too tight of a stop at or just beyond recent pivot highs or lows… These levels are where the market makers TRY to get the price to reach on a regular basis so they end up with a huge position that is very profitable in most cased within hours. Unfortunately these positions should have been in your trading account and not in theirs.
The market moves on emotions and 95% of traders do not have a clearly documented step by step rule book to follow, which removes emotions allowing them to nail down a consistently profitable strategy and stick to it. While I already have rules for each type of trade setup use last week I took a course to help me fine tune what I have even more so I can pass along how I do things to you. If you want to build your own documented system properly, then you really need to take Brian McAboy’s “Trading System Mastery” course. It’s a couple short manuals and 4 hours of VERY important step by step instructions on just how to document/create the perfect strategy for you.
Anyways, be sure to keep in mind that during overnight trading (After 4pm ET until 9:30am ET) is when most of your stops will trigger. That is when the market makers can walk the price up and down to these key levels and take your stops.
I focus on my stops only being active during regular trading hours to avoid most of this BS manipulation. While I am subject to price gaps using regular trading hour stops only, I know my risk and I know that an index is not going move more than 5% against me at the open in a worst case scenario. I manage my risk through position size and use wider stops thank most traders because I do not have all my money in ONE highly leveraged position.
I will put together an educational report on how, when and where you should place your stops along with how you can take advantage of it. It will take me a week or two to create but be on the lookout for it…
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AAPL shares have been in free fall mode all October spooking investors with a $120 drop from the all-time high in September. As well all know, though it’s hard to follow without a proven trading strategy to keep us focused but the key is that you must buy when others are selling and then sell when everyone is buying.
Apple shares really have helped in holding the overall stock market up in the past but recently it has been a big drag on the broad market. Taking a look at the chart below you can see my analysis and thoughts of this giant.
The red horizontal line shows the key level where high volume traded in the past. For the market to reset (flush out investors/traders) it must shake as many longs out before it can start rising again. By the price breaking below that level which also happens to be a Century Number $600, most of the stops were placed down around this level. The volume spike of 40,000,000 shares clearly shows it triggered stops once that $600 level was broken. We want stops run because it give more power to the next rally/bounce.
NASDAQ Index:
The NASDAQ has formed a similar chart pattern and is heavily weighted with AAPL shares. Trading NQ futures, QQQ, QLD or the XLK exchange traded fund as a much more affordable way to play a bounce/rally in the coming weeks.
Russell 2000 Index:
I really like the Russell 2000 index because small cap stocks can rally hard and fast outperforming the large caps like AAPL, SP500, NASDAQ and DOW. This index is looking ripe for a bounce in the coming days which could trigger the next major rally to new highs. You can plan this index through TF futures contract, IWM, TNA, UWM exchange traded funds.
Trading Conclusion:
While this setup looks very promising because the election is almost over and the Santa Clause rally is just around the corner. Know that some of the biggest drops in the market happens during times when the market is running the stops. It is a natural tendency to take big positions which things look great, but that is not how you do it… Take calculated position sizes knowing indexes could fall another 2-3% before putting in a real washout bottom.
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Crude oil prices hit a four-month high this week on the back of rising tensions in the Middle East and North Africa and the unfortunate murder of the U.S. ambassador to Libya. Added impetus on the upside was given to oil by the announcement of more money printing (QE3) by the Federal Reserve which said it would launch an open-ended commitment to purchase $40 billion of mortgage-backed securities monthly.
The global benchmark for oil, Brent crude oil, jumped to about $117 a barrel. It maintained its roughly $18 premium to U.S.-based WTI crude oil which was trading at $100 a barrel on a couple days ago. Non-futures investors can easily participate in the oil market through the use of exchange traded funds. The ETF which tracks Brent crude oil futures is the United States Brent Oil Fund (NYSE: BNO) and the ETF which tracks WTI crude oil futures is the United States Oil Fund (NYSE: USO).
The real story behind the story in the oil market, however, is the ongoing Arab Spring which is sweeping throughout the Middle East and North Africa, pushing aside some regimes and threatening others. The countries whose governments, such as Saudi Arabia and the other Gulf states, feel threatened by popular uprisings are where investors should put their focus.
Saudi Arabia in particular is key because it accounts for more three-quarters of the world’s spare oil production capacity. So it is very important to note that the kingdom is no longer a price ‘dove’ in OPEC as it has been for decades. It has joined Iran, Venezuela and others in being a price ‘hawk’.
The reason behind the change in attitude is simple…Arab Spring.
Like its neighbors in the Gulf region, Saudi Arabia has gone on a public spending spree to appease its restless citizens. It has sharply increased outlays on subsidies for items like food, fuel and housing in an attempt to appease its citizens. In 2011, the kingdom raised its domestic spending by $129 billion – the equivalent of more than half its oil revenues.
Much of this increased spending will go toward upgrading the country’s infrastructure. Take electricity, for example. Saudi Arabia has revealed plans to spend more than $100 billion dollars on power plants and distribution networks by 2020. The kingdom has also set a goal to electrify 500,000 new homes that are being built in an attempt to mollify political unrest among its population of 27 million people.
This spending spree led the International Monetary Fund and other analysts to estimate that the kingdom and other Gulf countries need oil to be selling between $80 and $85 a barrel in order for the governments to balance their budgets. This is up, in Saudi Arabia’s case, from a mere $25 a barrel a few short years ago!
Unfortunately for oil consumers, this trend looks set to continue in years ahead. According to the Institute of International Finance, by 2015 the Saudi government will only be able to balance its budget if oil prices are at $115 a barrel if current spending trends remain in place.
So in effect, with the Arab Spring forcing governments to spend more on their citizens, it has put a floor under the price of oil. OPEC will do everything in its power to keep the price above the budget breakeven points for governments in the Gulf region.
Keep up to speed on the oil and precious metals markets with my free newsletter: www.GoldAndOilGuy.com
Chris Vermeulen
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There should be an inverse relationship between gold (NYSEARCA: GLD) and copper (NYSEARCA: JJC).
Most of gold is used for investment purposes. As a result, it rises when there is economic weakness and investors lose confidence in the fiat currency of a country. Most of copper is used for industrial purposes. Therefore, the price of The Red Metal should increase when economies are booming, as there is a greater demand for it from the factories operating at full throttle and for the buildings being constructed.
Gold Bullion Prices
As the chart below evinces, the inverse relationship between the exchange traded for gold, SPDR Gold Shares, and the exchange traded fund for copper, iPath Copper, has broken down due to traders positioning themselves for the introduction of Quantitative Easing 3 when Federal Reserve Chairman Ben Bernanke speaks at Jackson Hole this Friday.
Continuing economic weakness in the United States will almost certainly lead the Federal Reserve to act in way that is more powerful than Operation Twist, the selling of short term securities to buy those with a longer term. Based on the most recent data, economic growth in the United States is falling as the unemployment rate is rising. A recent statement by the Federal Reserve was unusually clear in calling for greater action.
Both the JJC and the GLD have risen together as traders expect more economic stimulus from the United States Government. This will weaken the US Dollar and raise the price of commodities, as happened with Quantitative Easing 2. During the period of Quantitative Easing 2, from November 2010 to June 11, the US Dollar fell in value and the GLD and the JJC soared, along with other commodity prices, particularly oil. This pattern is being repeated as traders are preparing for the initiation of Quantitative Easing 3 when Bernanke speaks Friday, or at the next Federal Open Market Committee meeting.
Gold Spot Price Chart
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Good Morning,
Looks like today will be an exciting with stocks and commodities jumping in price up 1-3% as the US dollar pulled back in overnight trading. The SP500 is setting up for another short play which is showed in the video.
Yesterday our protective stop was triggered on the SP500 which was set at the previous day’s high. We locked in quick 7% on that position in only 5 trading sessions. You should be in cash at the moment.
Pre-Market Analysis Points: – Dollar index has pulled back and is now at support. Looks as though it may bounce or rally any day now which means more selling in stocks and commodities. – Oil is trading at major support on the weekly chart but overall the intraday price and volume action remains bearish at this time.
– Natural gas has bounced the past three sessions and is not trading at resistance. Lower prices are to be expected though Nat Gas is more of a wild card.
– Gold, Gold miners and Silver are moving higher by 1-3% this morning but volume is not behind the move and higher highs and lows have not yet been formed.
– Bonds have pulled back the past few sessions and could bounce or consolidate for a few more days yet. Price is floating in no-man’s land so it’s more of a wild card at this time.
– SP500 just continued to move higher in overnight trading up over 1%. This is going to put stocks in an overbought market condition at the open. Sellers may step in today or tomorrow and force prices back down for a 1-2% drop as talked about in the morning video.
Chris Vermeulen
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Good Morning,
I wanted to publish today’s video cause there is a lot going on. It’s going to be WILD so hold on to your hat!
Economic news was terrible and everyone is talking about a recession the past two days and with today’s data its clear we are in one or darn close. I’m sure there is some regulation that Obama made that says no one can use the word “Recession”. They will think of a new word for this.
If you are still short the SP500 like I am it would be wise to take a partial profits this morning or exit your position to lock in the gains. The market typically moves in certain percentage waves and we have just reach an extreme level where bounce may take place. We have made the easy money on this one and will be more than happy to reload at higher prices. We are up over 6% in 3 days.
Anyways, the video shows what has unfolded this morning and what my thoughts are going forward.
Morning Market Analysis Points:
– Economic News was all TERRIBLE
– Money is moving into gold and gold miners
– Silver is trading slightly higher but gold is key safe haven.
– The dollar is higher but not at much as one may think. The data today was on the USA so it’s not that bullish for the dollar but money is still coming out of equities and going into the dollar.
– Bonds are up over 1.5% rocketing higher and almost reaching our measured move goal.
– Oil is down 3.3%, Nat Gas is down 2.8% both starting to get close to major support.
– SP500 was down over 2% but is starting to bounce and now down 1.8%
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I also wanted to mention that on Sunday we close down our 30 day trial to our trading and investing video newsletter so if you want to know what is happening in the market and where your money should be each day/week then join our service. You get both Chris Vermeulen’s and JW Jones’ trading videos valued at $155 per month to test drive for a buck, then only $19.99 a month – www.TradersVideoPlaybook.com
.
Chris Vermeulen
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Investors and traders just can’t seem to catch a break when it comes to economic news. For example Tuesday in the United States we saw strong ISM manufacturing numbers which surprised the market. The numbers were way above expectations and it triggered a feeding frenzy in US based investments like stocks and the green back.
The following session Italy reported terrible PMI and unemployment rate numbers which took most of the wind out the European and US stocks. One day the data is great, next day it’s bad…
The strong numbers in the US have everyone including myself thinking that this week’s jobless claims (unemployment rate) will be down. If this is the case then we will see stocks jump along with the dollar, much like what we saw trader do last Tuesday which is what Jim Cramer says best – BUY BUY BUY.
Normally we do not see the dollar index rally along with stocks but if EU continues to show signs of weakness then it is very likely the dollar and equities inverse relationship could decouple. Reason being investors around the globe will focus their money on the more stable US investments like the dollar and US stocks.
The Dollar is Trading at a Major Tipping Point – Weekly Chart
The dollar index is something that I watch very closely on a daily basis. Focusing on the weekly and 8 hour charts I look for support and resistance levels along with price patterns.
As you can see from the weekly dollar chart below, a large bull flag has formed. This pattern typically means higher prices and in this case the price target is between the 86 and 88 level.
There are few wild cards to toss into the game on what will unfold next:
Currency manipulation seems to be strong and if the US wants a low dollar value then it’s likely it will stay low. This bodes well for stocks and commodities.
Depending on what happens and how things unfold in Euro-land the dollar/stock relationship could decouple meaning they could start to rise together. If we get neutral economic data out of the EU and positive data out of the US it will likely boost the value of stocks and the dollar. But strong negative data out of the EU will more than likely just sent the dollar higher and spooking investors and triggering a selloff in stock prices.
Dollar Index 4 Hour Chart
I find the dollar index to be a great trading tool in helping me time short term reversals in the equities market.
Taking a look at the 8 hour chart below you can see recurring bullish falling wedge patterns. The most recent brake out was this week and I anticipate the 79.50+ levels to be reached in the near term. If the dollar does continue to move higher then I expect sideways to lower stock prices for a couple more sessions.
That being said, the mixed economic data between the US and EU is going to cause this scenario to be unpredictable. Depending on the jobless claims this week stocks could actually rally while the dollar moves higher. Unfortunately, this week’s mixed data does not provide any trading opportunities that I feel comfortable making.
Mid-Week Market Conclusion:
In short, I feel a higher dollar is likely to happen. As for stock prices, well they are more of a wild card at this time but my analysis slightly favors higher prices.
To quickly touch on precious metals, they are likely to be under pressure for a few sessions simply because of the rising dollar.
I hope my analysis helps paint a picture of what to expect in the coming days.
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