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: [inline] [/inline] 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. [inline] [/inline] 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. [inline] [/inline] 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.