Holiday Squeeze on the Dollar, Gold & Stocks

The past week and a half has been as choppy as it gets for the stocks market. Thankfully the herd mentality (fear & greed) stays the same. Understanding what others think and feel when involved in the market is one of the keys to making money consistently from the market. The crazy looking chart below I will admit is a little tough on the eyes, and I should have used red and green for holiday colors but green just was not going to work today so bear with me.

Market Internal Indicators – 10 minute, 7 day chart
This is a simple chart to read if you understand how to trade these market internal indicators (NYSE volume ratio, NYSE Advance/Decline line, and Total Put/Call ratio).

It shows and explains how I get a read on the overbought/sold conditions in the market. There are several other criteria needed to pull this trade off but it is these charts which tell me to start getting ready to take partial profits, buy or take short positions.

The top section shows the NYSE volume ratio line. When the green line spikes is means there are more sellers than buyers by a large amount and I call this fear. On the other hand when he red line spikes it shows everyone is chasing the price higher because they can’t stand the thought of missing another rally. I call this greed or panic buying. You buy into fear, sell/short into greed.

Important point to note though… We are getting another sell/short signal here (Wednesday) but knowing Friday will be light volume and knowing that light volume means higher prices, I think we should get a better opportunity to short this new down trend next week at possibly a higher level. The market may have a short squeeze in the next 2-3 days. Just so you know, a short squeeze is when the market breaks to the upside on light volume forcing the short positions to cover. This creates a pop in price, only for it to drop quickly after. But, if we get a pop with solid volume behind it, then we could just see the up trend start again and we would then look to play the long side. Only time will tell…

Rising Dollar & Gold – I Don’t Get It?
That is the question everyone seems to be asking this week. I think what we are seeing is straight forward. Traders/investors are selling Euros because of the issues overseas and are buying the dollar along with gold and silver.

Generally when the dollar raises gold drops, but they are both moving up in sync, and really I don’t see the problem with this as it has happened many times in the past. Currently I am neutral on gold and silver because of this situation though. I feel something is about to happen in a week or so that will change things in a big way.

Mid-Week Gold, Dollar & Stock Trading Conclusion:
In short, the equities market is now in a down trend and overbought here. It’s prime for a short position but with the holiday, light volume Friday, and most likely a follow through buying session on Monday I think its best to sit in cash without the stress of wondering what will happen on Monday. Just enjoy the holiday.

Recently members had a great short play locking in 2.2% gain on one of our positions this week as we shorted the market using the SDS inverse SP500 ETF. We also continue to hold two other positions with a 22 and 24% gain thus far and I think going into year end things are really going to heat up.

To receive Chris Vermeulen's Real Time ETF Trading Alerts visit The Gold and Oil Guy.Com




Share

What is Next for the Dollar, SP500 and Gold

The equities market reversed to the upside Wednesday posting a light volume broad based rally. Remember light volume tends to have a neutral to upward bias on stocks, But it was mainly the sharp drop in the dollar which spurred stocks and commodities higher.

Today’s bounce was not much of a surprise for several reasons…
• Overall trend is up, one day sell offs are generally profit taking
• Panic selling on the NYSE tipped us off that the market was oversold
• I don’t think they will let the market fall before the November election
• Intermediate cycle is turning up this week, 3 weeks of upward momentum…

US Dollar Index – 4 Hour Chart
The dollar put in a big bounce this week filling its gap window… Remember most gaps get filled with virtually every investment vehicle so when you see them remember this chart....

SPY ETF – Daily Chart
SP500 has been riding the key moving average up and Tuesday’s sell off tagged the 14MA along with extreme market internal readings telling intraday traders that a bounce is about to take place.

Gold Futures – Daily Chart
You can see gold has done much the same… A sharp profit/stop running sell off, which took the price back down to support. We took a long position to catch this bounce and hopefully a larger move going forward.

Market Sentiment Readings
Tuesday’s pullback was a great reminder of just how over extended the equities market was. These heavy volume sell offs are typical in a bull market. Without regular pauses in price, traders tend to place trailing stops moving them up each day. With traders chasing stocks higher bidding them up instead of waiting for a pullback we get a very large number to stop orders following the price up each day. Then, it’s only a matter of time before a key short term support level is broken at which point the flood gates open and everyone’s stops turn to market orders flooding the stock exchanges with sell orders causing a rapid decline and panic selling. This is exactly what happened on Tuesday which I show in the chart below.

Understanding how to read market internals provides great insight for short term traders looking to make quick high probability trades every week… Market internals are just part of the equation but very powerful on their own with proper money/position management. Both of these intraday extremes were bought on Tuesday in the advanced chatroom (FuturesTradingSignals.com).. We quickly booked profits and moved our stops up in order to protect our capital as the market surged higher.

Mid-Week Market Trend Analysis:
In short, the US Dollar is still in a down trend overall. The Fed’s I would think will continue to hold the market up into the election. It works well for them… they print money which devalues the dollar, and in return boosts stocks and commodities, plus they get trillions of dollars to spend… I’m sure its like kids in a candy store over there.

While everyone is trying to pick a top in this over extended market I think it is crucial to stick with the overall trend and to not fight the Fed. Using the key moving averages on the daily chart as shown in the charts above, continue to buy on dips until the market closes below the 20 day moving average at which point you should abandon ship.

Get My Reports and Trade Ideas Here for Free at The Gold and Oil Guy

Chris Vermeulen


Share