Chart Watching

We've been to the sidelines these past few months as the market and gold ground higher, then failed. At this point we still have an uncertain feeling, but there should be resolution close at hand one way or the other. Many of the short funds (FAZ, SH) are starting to exhibit bottoming patterns in the charts. See for example: As the markets rally progressed we have seen a few buy signals on the  short side of the S&P (shown as the orange dots). However, observe that the buy signals didn't last for long, as they only barely pierced the 50 DMA.  So while last weeks action is definitly turning point material, it is too early to tell if this is it, or just a normal correction. If so, the correction may be something tradable or the start of something more significant. What we need to see is SH stay above it's 50 DMA. Looking back at the past year, it hasn't been able to do that once, or remain in the buy signal mode for any length of time.  Notice the descending 200 DMA. Any clear break to the upside would make that an initial target. Gold is another area we are looking at. The last buy signal was given at the end of July, and not once was a sell stop triggered until the December high. During the final run, as gold tends to do , it went parabolic and stayed well above the 50 DMA. Now it has cross pretty quickly beneath it. Failure to rebound will probably send gold down to the area around 1,000 - or the 200 DMA. Silver's chart shows it to be much more volatile. While it did follow the rise with gold since the fall, it's action was much choppier and volatile. That's the problem with silver - it's moves tend to be very quick and erratic. So what we can say is this - we need a little more time for confirmation. Secondly, the trend change on a weekly basis has not changed. If we change the settings on the above charts to weekly, everything we track on the long side is still on a buy signal, and therefore in an uptrend. Since these markets move in tandem more or less, if we see breaks in the weekly signals on any of the ETF"s or indices we follow - it will be a warning that a trend change is in progress. Gold right now is at the forefront of the trend change - if it breaks below 106 (GLD) on a weekly basis, it will signal a trend change underway. And we know from experience that gold tends to be out of sync with the market by a small degree. Remember gold topped in March of 2008 which lagged the stock market. Gold bottomed earlier than the stock market, and then topped again prior to the stock market. Our bias is now neutral - bearish. We are watching events unfold and will take swift action once we are clear on the trend, which should eventually lead to a sharp decline.

A set up?

We've seen what might be the precursor to a major shift in sentiment. Gold/Silver is still a key issue here as any stock market downturn would take the stocks down with them, but bullion? Seasonally we are entering a downturn period for gold, and late oct/early november would be good entry point. However if gold falls below 1011 then we might be in for a more substantial decline. Therefore we will hold our positions but potentially enter into the short side soon for the general market, long dollar and potentially gold/silver short or long depending on how things develop..

Updates

Due to various factors we have been a little quiet lately, not participating in the current sub-rally since the end of July and missed the gold/silver rally which talk all of 2 days to shot the metals and related stocks higher. Natural gas has popped, and we were prematurely stopped out a few weeks ago when gas made a 7 year low. However we will still keep our UNG gas position lower in anticipation of higher prices ahead. Since we are mostly cash - there is the subject of how to deploy. What major move, or major trend can we latch on to. After careful analysis we will be setting up a short strategy to cope with what we believe will be a large move DOWN by the stock indexes, commodities, and metals. While we are still bullish long term on metals, and hold sizable PHYSICAL possession, at this point we are gearing up for at least a correction, if not a sizeable one. The markets may prove to hold out longer, but more and more data convinces us that a turn is at hand. When financial magazines post how people are 'recovering' their portfolio in this rally - we know that they are about to get sideswiped in the next decline. The reason also, from a purely social standpoint is the 2nd decline, once it becomes ominously clear that it is more than a correction, will create  a vicious spiral of selling by folks that are looking to keep some of the profits they made during the rally. In other words, the psychological fortitude to hold will not be there like it was last year. We are assembling forces for possible employment in the following sectors: SH - Short S&P RSW - Double short S&P ZSL - Double Short Silver UUP - Long Dollar RFN - Double Short Financials (to supplement FAZ) With respect to the above, we will gradually add to positions and use our candlestick engine for part of the trades.  ZSL is not trackable, so we will use SLV as our buy sell signal (i.e. when told to sell, we will buy ZSL) In any event - we may move quickly and boldly as events unwind.

Weekend update

Here are the latest Blees COT ratings released on 9/11/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position: S&P 500 Index: 52 S&P E-mini: 61 Dow Industrials: 46 Nasdaq 100: 62 Nasdaq 100 Mini: 32 Gold: 0 Silver: 30 Crude Oil: 27 Copper: 26 Corn: 100 Soybeans: 76 Sugar: 31 Wheat: 99 Cattle: 73 Hogs: 100 U.S. Dollar: 89 Cocoa: 34 Natural Gas: 89 An important note is that the COT is not confirming this move up in gold.  While gold can still go higher than here, the big thrust many are calling for may not materialize. However if gold can advance, pull back and stay over $1,000 - and better COT readings can be had - it may set the stage for a bigger advance in the future.

Weekend update

Gold broke out of it's trading range last week in a quick fashion. We are going to wait until a pullback and enter some positions in anticipation of a possible run at $1300. We might even purchase some puts as an insurance policy. We will review the COT data once it comes in, however if it is bearish we must anticipate this surge in gold not to be the big one, but it might be a good short term trade nontheless. Silver is the same story. We will put in a partial position on pullbacks with close stops once we see a sizable rally.

Alert

Keep an eye out : 9558 for the DOW, S&P 1030 - these levels, if exceeded probably mean the rally will continue A break below 9116, 978 in the S&P means that the current peak has already been met and the probability of Wave (3) down - which is in it's early stages. We recommend putting stops on all long positions and phasing out to cash. If the above break lows are realized, some short positions would be prudent. More to come as we follow this.

Weekly update

Here are the latest Blees COT ratings released on 8/29/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position: S&P 500 Index: 58 S&P E-mini: 55 Dow Industrials: 50 Nasdaq 100: 39 Nasdaq 100 Mini: 21 Gold: 22 Silver: 59 Crude Oil: 37 Copper: 27 Corn: 98 Soybeans: 59 Sugar: 26 Wheat: 96 Cattle: 51 Hogs: 88 U.S. Dollar: 88 Cocoa: 48 Natural Gas: 92 A note that Elliotwave International has put out multiple alerts that say the conditions of the current bear market rally have been met. This is not to say we might see some upward thrusts, but the elements are in place for Wave (3) - the nasty one to be at hand at any time. However there are still a lot of bullish factors that may yet push the markets higher in the short term. Basically as posted before - we are keeping an eye on key levels for the metals and the markets and will enter positions once we feel there is a significant reversal.

Weekly update…

Here are the latest Blees COT ratings released on 8/21/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position: S&P 500 Index: 57 S&P E-mini: 48 Dow Industrials: 44 Nasdaq 100: 43 Nasdaq 100 Mini: 11 Gold: 26 Silver: 61 Crude Oil: 53 Copper: 24 Corn: 91 Soybeans: 56 Sugar: 21 Wheat: 100 Cattle: 49 Hogs: 79 U.S. Dollar: 84 Cocoa: 57 Natural Gas: 88 We haven't been posting lots of charts lately because we are waiting for some significant changes to the current trend that are worthy of a post. Right now we are still in a Wave 2 up rally that may continue for a while longer. However we dont recommend adding new money since the bulk of the upside gains have already been in place. Gold is still waffling back and forth in a trading range, and we are going to watch it over the next few weeks because at some point it will have to either break up or break down. It gold goes over 972 then we looking at the up trend scenario for the short term. The seasonal factors for gold should be positive, since September is typically a strong month. The COT numbers are still week, so we want to see a major move and then review the COT numbers which will give us a clue where the big money is hedging. Natural gas is continuing to perk up. While we hold a position in UNG, there may be issues down the road as the CTFC cracks down on speculators and non-commercial positions. This would cause the ETF's not to be an efficient method to track a commodity. In this case, stocks would be an option but would more likely ebb and flow with the stock market. So at this point we'll wait and see until a decisive move occurs.

Reaction – phase 1

We monitor both sides of the aile because we feel it's important to do so to maintain a balanced approach. Last week Elliotwave International warned of a pullback in gold, which we got today. (which of course jived with the poor COT numbers). The same goes for the general market as a whiff of fear hit the markets again which resulted in a nice sell off. Consequently the VIX spiked up.  For a frame of reference, we look to a reading below 20 to assume it's safe to go long (for 401k, long long term investors). So a reading above the cloud, VIX below 20 would be ideal. This from a posting at 321 Gold - courtesy of the Aden Sisters: 'Since then, a C rise has begun. It’s been quietly forming a coil and gold looks ready to take off. Gold’s been rising this past month and it’s strong above $935. It reached a nine week high and it would be very strong above $985. A super strong C rise would be underway above $1004, the record high. Keep in mind, C rises tend to be the best rise in the pattern. By hitting a new record high, gold would confirm that the bull mar­ket is entering an even stronger phase and it could then rise to near $1200. It would also confirm that the 8 year low indeed happened last November. Since November, gold’s been posting higher lows which is also positive action. For now, if gold stays clearly above the July 8 low at $909, it’ll be reinforcing its strong uptrend since November and all systems will continue to be go!' In order for the above scenario to be the more likely, we need to see Gold break above 975. If the bearish scenario is more likely, then gold must close below 925, and preferably 905. The trading range is steadily decreasing so a break one way or another is expected. But Gold is swinging in both directions with big moves lately, so we'll know pretty soon what our outlook is. Inversely, we'll keep an eye on the dollar as well. 79.40 is a key level that must be broken, and once we get a thrust over 80 we know the dollar is on the up. Conversely, this would result in lower gold prices, and more than likely lower stock prices for not only all the indexes, but the miners as well. Oil has pulled back as expected - and we should expect it to get pushed down to 60 at least, and 55 if the downtrend continues. Once we get set up for a new major move we'll post the charts and assess what moves to make.

Weekend update

Here are the latest Blees COT ratings released on 8/14/09 for some key markets. Remember “100? is the most extreme bullish position on the part of commercial traders (aka the “smart money”) for the last eighteen months. “0? is the most extreme bearish position: S&P 500 Index: 53 S&P E-mini: 53 Dow Industrials: 44 Nasdaq 100: 50 Nasdaq 100 Mini: 0 Gold: 16 Silver: 62 Crude Oil: 41 Copper: 46 Corn: 87 Soybeans: 42 Sugar: 24 Wheat: 100 Cattle: 45 Hogs: 76 U.S. Dollar: 93 Cocoa: 57 Natural Gas: 72 The COT ratings indicate weakness in Gold, and continued strength (although not as much) in the dollar. We have stayed on the sidelines while we see how things develop. We will be entering a point of resolution soon for gold, as the September is traditionally the strongest period of time. We will continue to monitor the 975 area, for a decisive close above it will negate the bearish outlook at least for the time being. This would mostly coincide with a dollar breakdown, which may be forming a bottom, or ready to break down again. The general market may undergo a correction, but there also exists a high probability for it to continue higher. We have already met the low end of the initial price targets, but some price targets go up to 11,500 for the dow, 1100 for the S&P. Therefore there may be room for some short term opportunities should we get a nice sized correction. We'll go over charts when we feel there has been a decisive move in either direction, or an important trend change. Right now we are just going to stand pat and stay pretty much in cash until we can identify a nice entry point.