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Posts Tagged ‘stock market timing’

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Look For Pullback In Gold and Silver As A Buy Point

In Market Analysis on October 13, 2010 at 7:59 pm

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These past few weeks, as the equity markets rallied based on the belief of further quantitative easing by the Fed in November’s meeting, the dollar has collapsed, which I warned readers about a couple of weeks ago. Since that time, gold and silver have had a historic and parabolic rise as investors feel the Fed will continue to ease through the end of the year. Investor sentiment has reversed completely over the last eight to 12 weeks, since I signaled a buy on gold. There are no concerns as bullish sentiment on equities and precious metals reaches record levels. Investors feel the Fed will solve everyone’s problem by devaluing the US dollar. The temporary Band-Aid isn’t fixing any of the core problems. Unemployment is still high and housing is weak. Neither the financials nor the homebuilders are participating in this rally, which leads me to suspect this entire rise in the markets isn’t sustainable as it’s been on low volume and key sectors haven’t yet participated.

In countries where there’s a huge deficit, the only solution to pay back debts is through a devalued currency. Japan has recently intervened to try to devalue the strengthening yen. A strengthening currency to countries with huge obligations can heighten the risk of default, which many countries are facing. Also, a strong currency puts pressure on international corporations that export products abroad. A weak dollar will cause the products to be more expensive to American consumers, hurting demand and growth. More sovereign debt defaults in emerging markets are expected. It appears that many investors ran to the dollar from the euro after the European Debt Crisis. I expect something similar to occur now. The euro is reaching a key resistance level and is overbought. This means a pullback should occur. The US Dollar is extremely oversold and at long-term support. The bearish sentiment on the US dollar is extremely bearish, which indicates a reversal should occur.

As global economies feel the consequences of the United States’ actions, I expect further fallout from weak economic growth and the sovereign debt burdens in Europe. Many investors are pricing in a major move from the Fed. I’m not so convinced, as equity markets are higher and the dollar has moved significantly lower. Investors should realize that unless we see another sovereign debt issue or another bank failure, another major round of easing is unlikely at this point. I believe the investment community is expecting too much from the Fed and it appears the Fed is doing an excellent job stimulating the markets just through speculation of a move rather than the actual move itself.

This last easing from the Fed has met with some more critics and it has definitely increased international tensions. The US dollar has collapsed and is now testing long-term support. I don’t know at this point if the Fed will be so quick to act the next time around unless there’s another deflationary crisis.


Technically the dollar is due for a bounce and investors should look for any pullbacks in gold and silver as a buy point. Instead of the risk associated with buying bullion at these extended prices, many juniors that would be extremely profitable at lower gold and silver prices haven’t broken out yet.

I believe these junior mining companies are presenting a great buying opportunity. Remember on these recent parabolic moves, the faster it goes up, the faster and harder the correction. Last Thursday showed a huge volume reversal day. This indicates to me that some of the smart money are hedging their long gold and silver bullion positions for a correction. Although we may see further upside, the move is about to get exhausted as it has taken out many technical targets and measured moves. Be careful of getting caught up in the hysteria.

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Dollar Slices Through 200 Day Moving Average After Bank Of Japan Announcement

In Market Analysis on September 15, 2010 at 5:42 pm

Gold broke out of a classic cup and handle pattern yesterday right before the Bank of Japan announcement.  The Yen has significantly strengthened since June as this is extremely difficult for the Japanese export companies.  The economy in Japan is weakening and they are facing their own sovereign debt issues which have not yet surfaced.  However, what is more important is how the markets are reacting.  This reaction in the yen may be short lived.  Although it might be a short term bandaid the intervention efforts may be too little for the global forces of supply and demand.  There is little support for the dollar as evidenced by the U.S. Dollar Chart.

Today the selling in the yen did not transfer to purchasing U.S. Dollars.  It seems as though yesterday and the past several weeks there has been a major rush into precious metals.  The dollar’s chart is giving warning signs of an imminent collapse. Certainly the dollar has not reacted positively to this announcement.

The dollar is slicing through its 200 day moving average and the 50 day clearly has acted as resistance.  A major transfer of dollars into precious metals are occurring.  A death cross is imminent on the dollar and this is occurring simultaneously to a new high breakouts on silver and gold.

Usually a weak dollar has been bullish for stock markets as investors were less risk averse.  However, this is not the case this time.  Even though the dollar has fallen since June the markets have failed to rally significantly.  Instead precious metals and mining companies have broken out of key resistance.

The S&P 500 has been in a sloppy and volatile base for four and half months.  The poor price volume action tells me a breakout above $114 is highly unlikely.  A third failure may be imminent as overbought conditions are combining with previous resistance.

This cup and handle pattern in gold is extremely bullish and could be the beginning of a next leg higher.  It is a sign of a major consolidation and this recent breakout may bring in more investment interest by institutions who are concerned about currency and sovereign debt issues.  A major transfer of capital is moving from currencies, bonds and equities into precious metals.

To see my recent prediction of this breakout move click here.

Gold’s (GLD) pattern is very rare and this setup tends to indicate a major move into hard assets.

If we see a decoupling of the dollar versus gold continuing, expect to see more buyouts of resource companies from Asia.  Right now we are seeing a massive transition of wealth from the dollar to silver and gold.

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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.