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Posts Tagged ‘spy S&P 500’

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Trending or Trading: When To Use Momentum Indicators

In Market Analysis on September 13, 2010 at 5:38 pm

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Price volume action is showing weakness on this rally and there is a good chance we could see a third failure at the 200 day.  Many times, before bear markets ensue you can encounter three or four failed rallies above the 200 day before the primary bullish trend is reversed. Markets take time to transition from a bull to a bear market. Bullish mania wears down as repetitive failures shows a market that is losing confidence.  On each subsequent rally the amount of bargain hunters dwindle.  Price volume action is poor on this rally attempt.  If we see another failure- which I believe may occur- we could see a major trend change.

Stochastics have been really accurate in this rangebound market.  Oscillators are most valuable in trading markets, not trending.  The S&P currently is a trading rangebound market while precious metals are in a steady upward moving trending market.  Since May the SPY has been in a trading range that only would have been profitable if one used oscillators.  On the other hand, in trending markets like gold which is in a steady uptrend the use of oscillators or stochastics should be secondary as those conditions shift as new high territory is reached.  In trending markets it is more important to rely on moving averages and trend support to make buy or sell calls.

Be careful of selling gold or silver solely on overbought conditions. Gold (GLD) and Silver(SLV) are in very bullish patterns breaking out into new highs in an upward trending market.  Whenever you see a breakout into new price territory on strong volume, momentum indicators need to be relied upon less.  Gold and silver have both shown tremendous relative strength and I believe will provide continued safety during a market downturn.

I believe gold and silver will continue to perform strong compared to other assets.  This summer has been hard on the equity markets and quantitative easing has been necessary for the Federal Reserve to maintaing momentum in this market.  New job growth has been weak and we are not out of the woods with the European Sovereign Debt issue.  Junior mining stocks who are translating cash into resources is where I want to be at the moment as they have held up well during this summer correction.

Gold is finding support at the 4 week moving average and is forming the handle on the cup.  I believe gold and silver could have a very strong rally as the general public becomes aware of the junior mining sector and the value of gold and silver as an asset class.

Disclosure: Long Gold and Silver Mining Stocks

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Head and Shoulders Pattern and Rising Wedge on S&P500

In Market Analysis on August 23, 2010 at 7:38 pm

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The rise in equities from March 2009 to April 2010 lacked one key ingredient in a bull market: volume confirmation.  There were many technicians who pontificated why the lack of enthusiasm of the uptrend existed.  Some said that it was the 2008 de-leveraging of hedge funds that caused the decreased participation.  I was never convinced of this far fetched  argument because on each correction volume increased significantly.  I’ve been skeptical of the claim that this time will be different. While studying charts over the years, one indicator I am always loyal to is volume.  It is the enthusiasm in a market which shows if a rally or decline is convincing.

The H&S pattern is one of the most reliable chart patterns.  The S&P 500 is showing an apparent head and shoulders top with volume confirmation. One way of affirming the validity of this formation is by checking the volume on the right shoulder, because  the right shoulder is the first rally in the bear market.  The low volume shows a lack of confidence in the previous bullish trend.

The sharp breakdown of the S&P 500 following after the rising wedge pattern tells me that this bear market is likely to continue. Several indicators, namely the bearish death cross, break in trends and poor price volume along with the bearish head and shoulders pattern and rising wedge all combine to weigh heavily against equities.

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GLD is experiencing a “v” formation after coming to long term support and a 50% fibonacci retracement.  On July 28th, many of you have read my views and why I believe gold was at a buypoint, contradicting the consensus of market timers at the time.  Now I believe gold is in need of much needed respite in the trend and a shakeout before continuing into new highs.   Gold buying has also gotten some TV airtime from a few famous commentators who are now turning bullish on the metal.  That really concerns me, as it is a contrary indicator.  We may see a healthy correction so that GLD can clear the previous resistance and make a move into new highs.  A healthy correction could also provide an excellent market entry point for a trader who wants to add to their gold holdings before a new breakout.  If you study the move into new highs from September of 2009 you will see the coil formation where it had three pullbacks to support.  These formations are bullish as they provide the conditions to generate a high percentage move.  For specific stock selection visit my website at http://goldstocktrades.com.

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GLD is overbought and if you are trading short term, do expect a pullback to at least the 50 day moving average to find support or possibly shakeout the traders who bought in after it crossed the 50 day moving average.