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Posts Tagged ‘trading gold stocks’

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Dollar Bounces Higher On Fear of Fed’s Next Move

In Market Analysis on October 27, 2010 at 9:21 pm

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On October 7, my technical indicators were signaling a major reversal about to occur in gold and silver. Seeing that one-day outside bar reversal in gold and silver on huge volume right before the jobs report raised huge red flags. It indicated to me that some of the smart money was hedging their long gold and silver bullion positions for a correction and a possible dollar manipulation from Washington. I warned to beware of getting caught up in the gold and silver hysteria.

That day was a signal to take profits after the major move as gold and silver are now correcting on fears that the next round of quantitative easing will be significantly less than expected.

On October 13 I wrote:

…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…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.”

Now we’re seeing a huge sentiment change in precious metals as the dollar is being supported by a report that expects the quantitative easing to be significantly less than expected come the next meeting on November 3.

I warned readers at the end of July to purchase gold when it was oversold and to take profits as the precious metals market was getting overheated. Sentiment on gold was way too bullish. Many noted analysts from major Wall Street firms were raising targets right before the gap down in gold. Usually, that signals exhaustion of the trend. A gap then followed by an outside bar reversal was very bearish and increased the probability of a pullback.

Selling pressure has returned to the precious metals market as investors may not have the stimulus that was expected. Treasuries are also declining even with the major purchases from the Fed. What will occur when the Fed needs to exit these purchases? And what if foreign governments refuse to buy our debt? This could send interest rates soaring, which could put a lot of pressure on the housing recovery and the economy. Yesterday, the commerce minister from China, and even voting members of the Fed, came out with very strong words about the consequences of a rapid devaluation.

This less-than-expected quantitative easing may present another buying opportunity for long-term precious metals buyers as the manipulation to support the dollar continues. This is only temporary as sovereign debt issues continue to plague the world’s economy and central banks will be forced to inflate. Eventually the Fed will have to pump, but right now, with the markets close to all-time highs and the dollar bouncing off lows, is not the time. The financials and housing are showing the foreclosure crisis isn’t over. Bank of America (BAC), JPMorgan (JPM), and American Express (AXP) are showing relative strength weakness as the markets are close to new highs. This signals we may have more defaults and foreclosures. I don’t expect the Fed to act as expected until the markets correct and we see more credit issues, bank failures, and sovereign debt issues.

Banks are in a serious downtrend unable to regain the 200-day moving average while copper (JJC) and the S&P 500 (SPY) are near or above new 52-week highs. Recovery hopes seem to be weakening, evidenced by the banking ETF (KBE) unable to hold support or break through the 200-day moving average. High volume distribution signals we could be in for a major decline in financials and housing.

When we see a major downturn in the market or in the financials, look for another round in quantitative easing to resurface and a buy signal to be generated for gold and silver.

A stronger dollar will put pressure on the equity markets, which have been driven largely by sectors that benefit with reflation such as miners and basic commodity producers. This short-term pullback in the gold and silver miners that has been expected with this dollar bounce will produce new buy signals in the next few weeks.

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Using Oscillators To Time Stock Trades

In Market Analysis on July 15, 2010 at 5:45 pm

Fears of far-reaching government oversight in the financial industry and weak economic data coming out of Philadelphia are contributing to today’s modest decline in the market.  Many fear that this bill will hurt the financial sector as more government oversight is required.  The bank bill implies that the government can have access to control banks when they are in a vulnerable situation.

Weak economic data from Philadelphia also disappointed analysts.  I am concerned that the same people who termed “too big to fail” and bailed out these big banks causing huge amounts of debt for future generations are designing the legislation to “prevent” it in the future.

These last few weeks I have been warning subscribers about this decline and the possibility of a major drop following the very bearish death cross.  For timely updates and specific recommendation please subscribe to my free newsletter at my website at http://goldstocktrades.com.

After a six day rally U.S. equities became quite overbought.  I use oscillators to time market entry.  Oscillators are used to identify short term market extremes.  If the trend is moving lower, I will use the oscillator to tell me when the market is overbought for a short entry point.  The recent market bounce with six straight up days gave extremely overbought readings.  This means this recent rally went too far too fast.

The indexes now have downward sloping 50 day and a flattening 200 day moving average.  Poor price volume action continues to plague this market as the rally has been on low volume which shows a lack of support from institutional investors.  The slope of the 200 day moving average turning negative will confirm the death cross and a failure to break through the 200 day and continued weakness will be another bearish confirmation.

Yesterday, those overbought conditions were signaled and it coincided with the Dow reaching the 200 day moving average.  Today’s downward reversal from the 200 day is indicating that this counter-trend rally is completing.  Traders might want to think of going short at this point as most traders who were shorting when the index broke to new lows have covered.  It is also an opportunity to move to cash if you still have long positions.