Wednesday the market didn’t tell us anything new. The equities market is still over extended on the daily chart but the market is refusing to break down. Each time there has been seen selling in the market over the past two weeks, the market recovers. Equities and the dollar have been trading with an inverse relationship and it seems to drop every in value each selling pressure enters the market, which naturally lifts stocks.
That being said, sellers are starting to come into the market at these elevated levels and it’s just a matter of time before we see a healthy pullback/correction. The past 10 session volatility has been creeping up as equities try to sell off. There will be a point when a falling dollar is not bullish for stocks but until then it looks like printing of money will continue devaluing of the dollar to help lift the stock market. Some type of pullback is needed if this trend is to continue and the markets can only be held up for so long.
Below is a chart of the USO oil fund and the SPY index fund. Crude has a tendency to provide an early warning sign for the strength of the economy. As you can see from the April top, oil started to decline well before the equities market did. This indicated a slow down was coming.
The recent equities rally which started in late August has been strong. But take a look at the price of oil. It has traded very flat during that time indicating the economy has not really picked up, nor does it indicate any growth in the coming months. This rally just may be coming to an end shortly.
This daily chart of the SP500 fund shows similar topping patterns. This looks to be the last straw for the SP500. Most tops occur with a gap higher or early morning rally reaching new highs, only to see a sharp sell off by the end of the session which generates a reversal day. From the looks of this chart that could happen any day.
In short, volume overall in the market remains light which is why we continue to see higher prices. Light volume typically gives the stock market a positive bias while Sell offs require strong volume to move lower. That being said every dip in the equities market which has been close to a breakdown seems to get lifted back up by a falling dollar, but that can only happen for so long because one the volume steps back into the market the masses will be in control again.
You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more info across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Due to more analysis and that I want to keep the service personal the price of the service will be going up Oct 1st, so join today.
This week has been playing out as expected with prices grinding their way higher and lots of sharp intraday sell offs and rallies which is indicative of a market getting toppy.
Seems like the masses feel as though they are getting left behind which is why we are starting to see the panic buying in the market (new money buying at these lofty overbought prices).
Each time there is a new intraday or daily high on the major indexes there is a renewed bullishness created as breakout traders and novice traders buy into the market hoping for the next surge in price. It is these volume surges of new money entering the market which the big guys (smart money) are selling into. You can see it clear as day light on the intraday charts as new money gets sucked into the market new high and then 2 minutes later larger waves of selling hit the bids. I did explain and show a chart of how this looks to members of the FuturesTradingSignals.com today.
We have some very exciting times ahead and it’s just a matter of letting the market unfold over time as we take advantage of these carefully measured low risk setups.
On to the charts....
GLD ETF Trading – Gold Exchange Trading Fund
You can see how this chart has evolved from pattern to pattern as it bottomed over time.
Today we had a breakout and I expect to see a pullback which is normal when prices gap up and breakout of a pattern. An entry point would be considered on a pullback if the proper criteria are met.
SLV ETF Trading – Exchange Traded Fund
Silver has always been much more volatile than gold which is why the pullback early this year was so strong and why the recent rally has also covered so much ground. As you can see silver has broke out above resistance but is now looking overbought. A pullback in precious metals is expected, or a pause at least.
USO Crude Oil Fund
Oil has made a nice move higher the past week but I feel it will pullback also in the coming days for a breather. There are a couple sizable gaps to fill all the way back down to $40.50.
UNG Natural Gas Fund
This natural gas chart looks very interesting. In the chart I am comparing the 2009 low to today’s price action.
From looking at the chart, natural gas is way oversold and in dire need of a relief rally. As you can see the sharp rallies which occurred just before both the 2009 and the current possible bottom look identical. This type of price action is very common to see.
Let me explain: When an investment is this over sold, meaning it has sold lower for weeks if not months, then there is a large growing number of traders looking to pick a bottom. Once these traders see prices start to move higher they all jump in thinking its “The Bottom”. Some times it is but more times than not it’s just a suckers rally.
General rule is, if everyone can see it, then its most likely not going to happen.. this is also part of the reason the major indexes keep going up. It looks like a great short and a tone of traders are in cash waiting to take advantage of the drop. But the market will keep pushing higher until fear its not going to pullback. That’s when the new money buys back in fueling the GRIND higher.
Anyways, so after all the bottom pickers jump on the train and there are not any more buyers and the price tends to drift lower scaring these traders back out of the position. Eventually a new low is made and everyone is shaken out of the investment. The crazy part is that just as they get out, the price usually turns around and does exactly what they new was going to happen –Go Up.
Most traders have the direction correct, it’s just their timing is off. My general rule is when I see something I wait another bar, sometimes I keep saying that to my self after each new bar until I am confident in the predicted move or price I can get into the position at.
Mid-Week Trading Conclusion:
In short, the bull market continues to grind its way higher. Unfortunately we cannot do much until there is some type of correction because buying way up here after a 2 month rally is outside of my comfort zone.
I foresee a 3-5% correction starting any day now so I am keeping my gunpowder dry.
