Considering the chart above, gold appears overbought and prime for a drop. The relative strength index is at 72.68 and above the 70 level which would normally be a sell for us. Although we always load up heavily on gold when the RSI is on or below 30, we never sell when the RSI hits 70 during major rallies.
Why? Well, simply because when gold decides to go on a run it generally disobeys the RSI overbought reading as it simply continues higher.
A textbook case of this is during that run to $1225 in late 2009, the RSI was well above 70 in early November while gold was just $1100. Selling in early November because of the RSI reading would have missed a whole $125 move upwards. And shorting the yellow metal at that time would’ve proved fatal. With this example fresh in our memories, we will not sell gold when the RSI gives us a sell signal during major rallies, and the current RSI reading 72.68 does not deter us from being long gold.
Prior to breaking the $1033 major resistance with a follow through to over $1200, gold broke the $720 mark which was previously another major resistance. From $720 gold subsequently rallied to $1033, a move of over 40%. Gold made another 40% move when it surged through the $500 barrier to $720.
One may infer from these observations that we are presently likely to get another 40% move.
Considering the breakage of the $1033 resistance area, this gives us a gold price for the present move of $1446.20. This is a rough estimate but it would not be unreasonable to expect gold prices to move up towards $1400/ounce during this major rally, and then when one factors in the possibility that these large moves could become even larger than 40% as the gold bull market progresses and becomes more volatile, prices higher than $1400 appear possible.
We normally look to the ultimate inverse gold price indicator, the US dollar, for more clues on what gold prices might do and when. But since gold and the USD have recently been moving up together, this analysis technique isn’t too helpful. However, investors should not lose faith in the gold bull market simply because this inverse relationship hasn’t worked recently.
One should keep in mind that in the last gold bull market, gold and the US dollar moved up together, so it is likely that this could happen again. Also, the fact that gold is rallying in spite of USD gains is a sign of great strength in the yellow metal.
We think that in the long term, as the USD resumes its bear market down trend, gold prices will continue to move higher. In the shorter term we believe that if the Euro should find its footing and begin to rise, as a result of perceived improvement in the sovereign debt issues in Europe, the USD will drop back slightly and gold price will likely take a hit. For now, gold has become a safe haven investment sparked by unstable conditions in Europe.
An improvement in European debt conditions would likely take away some of the premium presently given to gold. However, if this should occur we expect gold’s price decline to only be temporary, since USD weakness will ultimately drive gold prices higher. Essentially this could work out as a win-win situation for gold, albeit with the second win scenario of EURO improvement slightly delaying gold’s rise.
The bottom line is that the major rally beginning with the break out above the previous all time high of $1033 is not over yet. We will likely see $1300 plus very soon. And, we believe that gold did not recently break above its December 2009 high of $1225 just to rally to $1249. There is more to come!
As we are now trading at all time highs, we are in unchartered waters. Volatility should be expected, and in large doses. Short term, gold could drop back to $1185. Ideally, however, we would like prices to consolidate at these current levels so that $1225 will become a support level and a base for the next move up.
So far in 2010, all eyes in the gold market have been looking up at $1225 wondering whether gold get back to that all time high? Now that question has been answered yet another arises, where next for gold?Our answer to that question is that we believe this rally still has gas in the tank to run higher. Gold didn’t break its resistance at $1225 just to climb another $24 or 1.95% to $1249. There must be more in this move.
Last week was amazing for both gold and index traders as gold surged higher and the SP500 tested a key resistance then fell 4% in our favor. The past couple weeks with the mini market crash and Euro issues making the market extra volatile both gold and the broad market (SP500) index has been wild.
The added volatility makes trading more difficult because price patterns become less predictable and price movements are much larger increasing risk for traders.
Below are the charts & videos of what to look for in the coming days…
GLD – Gold ETF Trading
Gold continues to trend higher at an accelerated rate. Friday we saw gold pullback and test a key support level then bounced to close in the middle of the days trading range. As you can see the trend line support has become very steep and once the trend line support is broken I figure there will be a sharp drop to digest the recent rally.
SLV – Silver ETF Trading
Silver popped and tested a key resistance level from a previous high as expected. It also tested the top of its trend channel providing even more resistance. This week will be interesting as we wait to see if precious metals have a small pullback or continue to rally.
SPY – SP500 Index ETF Trading Chart
This chart clearly shows what I think is about to unfold by looking at the past market drop. Because of the mini market crash triggering everyone’s stops already I figure we have made the low and the dip we are seeing now will drift down a few more percentage points then bottom out.
ES M0 – SP500 Mini Futures Trading Setup – Pre-Drop
Below is a chart of the SP500 which we shorted or bought the SDS bear etf trading fund last week looking to profit from a falling stock market. As you can see from the chart we saw the es mini contract drift into a key pivot point on light volume. What this means is that a large group of sellers will be waiting at that price, and because volume is light we know there are not many buyers at this price level. Simple supply/demand comes into play with more sellers causing the price to stop rising and eventually force the price lower which is what we were anticipating.
The green arrows show key support levels on the 60 minute chart where 1/3 of a position should be taken of the table to lock in gains which also reduces overall risk on the trade. Once we cash in the first 1/3 of the position we move our protective stop the breakeven which is the entry point for the remaining portion of our position. This turns the trading into a winner no matter what happens allowing us to enjoy the ride…
ES M0 – SP500 Mini Futures Trading Setup – Current Price
Here is the same chart 24 hours later showing both of our profit targets triggered pocketing 2/3rds of our position for a very nice gain. Depending on the type of trading vehicle you traded there was potential to make up to 150% return in less than 24 hours.
We currently hold 1/3 of the position left with a loose stop allowing the trade to mature incase the down trend continues for several days or weeks. If not and the price rallies then our stop will get triggered for small profit on the balance of the position. Either way we win.
Stock Market ETF and Futures Trading Conclusion:
In short, the market is trading on increased volatility making it difficult to find low risk setups. At the moment we are long gold and short the SP500 with both position deep in the money. All we can do now is manage our positions to make sure we maximize our profits.
Chris Vermeulen
The “Golden Trading Vehicle” that
has nearly 100% accuracy – Click Here
Please join me to consider a time in the stock market that lasted just under three years: 32 months, to be precise. During this period a series of powerful rallies stand out clearly on a price chart. The shortest of these rallies was four weeks, the longest more than five months.
(MarketWatch) — A controversial measure requiring the government to conduct an unprecedented one-time audit of the Federal Reserve’s economic crisis response programs was approved with overwhelming bipartisan support Tuesday by the Senate as part of sweeping bank reform legislation. The amendment also calls for releasing the names of institutions that received in total more than $2 trillion in loans from the central bank during the peak of the financial crisis. The provision received a vote of 96-0, with many lawmakers agreeing to back it following a compromise reached late Thursday. “This makes it clear that the Fed can no longer operate under the kind of secrecy it has been operating under,” said Sen. Bernie Sanders, I-Vt., the measure’s author.
This story has the potential to turn into something quite significant as it has long been believed that JP Morgan has depressed the price of silver through massive short positions that grew even larger after the early-2008 Bear Stearns acquisition.
Feds probing JPMorgan trades in silver pit
Federal agents have launched parallel criminal and civil probes of JPMorgan Chase and its trading activity in the precious metals market, The Post has learned.
The probes are centering on whether or not JPMorgan, a top derivatives holder in precious metals, acted improperly to depress the price of silver, sources said.
The Commodities Futures Trade Commission is looking into civil charges, and the Department of Justice’s Antitrust Division is handling the criminal probe, according to sources, who did not wish to be identified due to the sensitive nature of the information.
The probes are far-ranging, with federal officials looking into JPMorgan’s precious metals trades on the London Bullion Market Association’s (LBMA) exchange, which is a physical delivery market, and the New York Mercantile Exchange (Nymex) for future paper derivative trades.
JPMorgan increased its silver derivative holdings by $6.76 billion, or about 220 million ounces, during the last three months of 2009, according to the Office of Comptroller of the Currency.
Recall that, in the recent CFTC hearings on metals markets and the somewhat ugly aftermath in the gold and silver community related to the inner workings of futures markets, this was the one major issue that remained – that JP Morgan basically controls the silver price.
The past few weeks I have been talking about the SP500 forming a top similar to the January top we saw earlier this year. Well the charts below show exactly what I have been waiting for to unfold and I think the time has come for the market to take a healthy breather before continuing this strong bull market which could last another 12 -24 months before really topping out.
SPY – SP500 ETF Trading Chart
I am showing the SPY etf because that’s a fund most people know and trade, but this analysis is the same for trading futures like the ES M0 Mini SP500 contract.
You can see the similar price action which formed in January and what has happened recently. I feel we are about to see a correction which would last several weeks which is very exciting for us traders.
SPY April Top – SP500 ETF Trading 60 Minute Chart
This chart shows the past few weeks of price action with the market becoming more volatile with waves of selling and buying. This indicates exhaustion and generally leads to a market correction or at least some sideways movement to digest the recent rally before continuing higher.
SPY January Top – SP500 ETF Trading 60 Minute Chart
Take a look at this chart of January….
Very similar price and volume action.
SPY January Sell Off – SP500 ETF Trading 60 Minute Chart
This chart shows the sell off last January and the setups I had when the market reached extremes generating trades with the underlying down trend.
SP500 Day Trading & Swing Trading Opportunities:
I hope these charts help you to see how I read the market and what I am looking for in trade setups. While its easy to see these setups in hindsight it requires a lot of research and experience in-order to time these plays in real-time when emotions are flying high and with BNN, Bloomberg, CNBC and other newsletters all saying different things…
Some words from fellow traders:
“I just wanted to let you know how much I’ve learned from you already. Understanding that you don’t always have to be in the market because another Low Risk Setup is just around the corner tops my list. Keep up the good work.” Matt Brennan, CA, USA
“Hey, Chris!
I really like the way you think and I’m already learning some useful stuff. I tend to be too aggressive, that’s another reason I picked you – I think you have just the medicine I need to learn to be a bit more cautious and to manage risk better. My biggest weakness is jumping the gun. Pretty typical, I guess. Already I can see I will learn to improve from following your lead.” George Faison, VA, USA
If you would like stock market training, how to find low risk setups with great potential along with my trading signals then check out my websites below:
The Food and Drug Administration Thursday approved a new type of prostate cancer treatment from Dendreon Corp. The therapy, Provenge, is approved for certain men with advanced prostate cancer who have failed treatment with hormone therapy.
“The availability of Provenge provides a new treatment option for men with advanced prostate cancer, who currently have limited effective therapies available,” Karen Midthun, acting head of the FDA biologics center, said in a statement.
MarketClub has an interesting take on today’s DNDN action. Click Here for today’s FREE Trading Report + 100 score is given.
FREE DNDN Stock Analysis
Courtesy of www.Fmxconnect.com
CH0421PM
It’s almost like bad case of 2008 deja vu. Goldman Sachs says oil is going to $99 in the next 12 months as Bernanke’s reflation experiment drives prices higher. According to their analysts energy and metals prices have “broken out” of their trading range and could head higher:
“Energy and industrial metals prices break out of recent trading ranges, rising to the highest levels seen since 2008. After trading in an increasingly narrow range in March, energy and metals prices broke out to the upside as March rolled into April, with WTI crude oil prices rallying above $85/bbl.”
“We expect the supply-demand balance to continue to tighten in 2010 as the global economic recovery continues to strengthen demand, draw inventories and draw OPEC spare capacity back into the market.”
Based on the improving fundamentals they see oil prices touching $99 at some point in the next 12 months. Of course, this doesn’t mean the oil market is without risk. Goldman sees potential policy risks and still believes the economic recovery could falter:
“While we remain confident that oil prices will continue to strengthen as the global economy recovers against a supply backdrop that remains constrained, policy risks to the economic recovery remain. While we continue to expect the supply-demand balance to tighten, significant downside risk remains should the market’s concerns regarding a slowdown in economic growth be realized. As we move further into 2010 and even 2011, we think the market’s focus will increasingly turn from the downside risk from demand to the upside risk from supply.”
How to play it?
Goldman wants to buy December 2010 NYMEX WTI and June 2010 NYMEX WTI call struck at $85/bbl.
Source: GS
Here’s an important heads up.
Today at 10:00 AM Ben Bernanke will attending a hearing on “The Economic Outlook.”
There’s always some nervousness before he speaks (will he all of the sudden sound more hawkish?).
Let us give you a preview of some things that might come up:
- On the deficit, Bernanke will say it’s a serious issue, but that it’s too soon to do anything about it. At some point it will have to be dealt with. You know, after everyone that’s in office now is out office.
- On entitlements, Bernanke will say they have to be fixed. At some point.
- That may involve some discussion or raising taxes (not his problem).
- He’ll say the economy is strong…
- But not so strong that we’re out of the woods yet (this will be the money line, when stocks will go nuts, because investors will know that this is a code word low rates).
- If Ron Paul is there, that will produce something YouTube-worthy.
