The Die Is Cast

Since the October rally ended, the SPX formed what looked like an “extended distribution phase” in the form of a rounding top. This is even more apparent on the Dow Jones Composite Index.  Early June, it dropped below its 100-DMA, it slightly breached its December low, but rallied. A second attempt was made to break through which also failed. The rallies found resistance at the 100 MA and last week, a third attempt at breaking the bottom trend line also failed … or did it?

With Greece’s default the Dow Jones index is completing its rounding top/descending triangle pattern by finally making a new low. A Monday morning opening gap to the downside could be the perfect way to end this formation. If so, this could be the beginning of the correction which has long been expected.

 

Current Position of the Market 

SPX: Long-term trend – Bull Market

Intermediate trend – Waiting for confirmation that the ending diagonal is complete.

Short trend – Neutral

 

Greece’s decision to hold a referendum on July 5 and not to accept the final offer made by its creditors resulted in a Greek debt default and is currently unsettling to markets. Should that be the case, SPX should follow suit by extending last week’s decline.

This could be the end of the 7-year cycle we talked about, closing its grip on the market by applying pressure which is increasing gradually every week.

USA markets will be closed on July 3. It will therefore be a shortened holiday week of trading.  My current concern now is whether or not World equity markets will resume a 10% correction down or more.  This period of a cycle that we work with has a very high historical correlation to 10% or greater reversals in the DJIA.  The question is whether that decline has already started.

We defer to our models for the confirmation of this move and any other future moves.

Gold fell to a low of 1167.10 on Friday, June 26. . This may be important because Silver fell to a low of 15.45 on Friday, June 26, well below its low of the past three months.

Something big may be in the works.  It is ironic that the Greek debt default, the lack of a conclusion of the USA/Iran negotiations and The Supreme Court’s decision to uphold Obamacare subsidies of The Affordable Care Act are ALL historical events occurring at the same point in time is not a random act.

This decision upholding the IRS rule giving all Americans access to premium tax credits, millions of Americans can breathe easier today knowing that there is access to health care.

I believe that The Supreme Court validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim.  President Obama has already creative secret deals that Americans are not yet aware of.  I fear that these unchecked political power in the Executive branch will be misused again and again by the President.

At this time, we are currently experiencing a new “socio-politically-economic” revolution.  The passing of this Affordable Care Act (aka Obamacare will continue to bankrupt the county and many of the people in it.  It is only affordable for some in terms of lower premiums. The other side of the coin is that deductibles are so high that many still cannot afford health care under this Act. For them, it is anything but affordable.

The yield on the benchmark 10 year note closed last week at 2.26%.  This week’s close was 23 bps higher at 2.49%.  The 30 year bond yield closed the week at it 2015 high of 3.25%.  Current financial market conditions with low levels of interest rates have resulted in negative yields for some Treasury securities trading in the secondary market.  Negative yields for Treasury securities most often reflect technical factors in the Treasury markets related to cash and repurchase agreements markets and are at times unrelated to the time value of money.

We had a confirmed signal to exit the ETF “TLT” on June 3, 2015 at 118.39.  Today, its current prices 115.23, I am expecting this price to go lower.

Learn What Is Happening and Profit: Global Financial Reset Alerts

 

Chris Vermeulen

China Resets The Currency Markets

The Chinese central bank is backing its Yuan with GOLD. This may set the Yuan as a “New Reserve Currency.”

If this happens, a new order in global currencies will appear. This would attract new foreign capital.  The rest of the world will view the Yuan as a real currency rather than a fiat currency. Creating the Yuan with a gold standard will surely make China more powerful and become a more influential world power.

The United States Dollar will no longer be the only “Reserve Currency” in the World anymore.

China will most likely become the world’s largest economy catapulting over the United States. They already have close ties to the world’s largest energy nation (Russia), and consumer based BRICS (acronym for the combined economies of Brazil, Russia, India, China, and South Africa). It is only a matter of time before a large portion of the world systematically rejects the Dollar.

 

The world will seek stability in a much different type of financial construct. The BRICS nations have already started making alternatives to the World Bank, IMF, and the SWIFT system. We will be facing a hard choice: Either remain steadfast to the old regime or shift to the “New Paradigm.” In shifting to the “New Paradigm”, we will set up the Yuan as the next global reserve currency.

Russia and China are in the works to create a new alternative to the long-standing SWIFT system. SWIFT stands for the Society for Worldwide Interbank Financial Telecommunications. It is a messaging network. Financial institutions use it to securely transmit information and instructions with a standardized system of codes.

An alternative to SWIFT could end the US Dollar as the sole reserve currency in the global financial system. The Russians would then turn away from the SWIFT system and have a new alternative. They would thus avoid any serious economic sanctions now or in the future.

Russia is expected to join forces with China and create their own “Union Pay”. The People’s Bank of China started “Union Pay” in 2002. It is now the second-largest payment networking system behind Visa. Union Pay is now preparing for a full-scale collaboration with Russia.

RELATED: If You Have Money in a US Bank Account Be Aware!

It has developed the foundation needed to be very successful in this venture.  This would replace the SWIFT system. Then Russia and China could avoid any interference by a Western superpower imposing economic sanctions on them. To this end, they have decided to end the Dollar as the global reserve currency.

They are now creating another choice everyone can pick and use as they like. I would call this a “Game Changer”. There will be two reserve currencies as Petro-Yuan joins Petro-Dollar.

 

Learn more and trade these global trend changes with us: Global Financial Reset Wealth System

Chris Vermeulen

 

gfrws2

 

In Three to Five Years Gold Will Be Priceless

Over the next few years as debt, currencies and countries start to fall apart individuals will be looking to place their money where it will hold its value and buying power during times of extreme uncertainty.

If you eliminate fiat currencies which are created out of this air and are nothing more than a credit we are left with precious metals and stones. As much as we have evolved over time, we could be valuing things like gold, silver, platinum, and precious stones more so than our currency.

Let’s face it, currencies are swinging in value 20-50% regularly and while most people do not realize it their buying power often is not as strong as it was. Would you rather hold a large portion of your capital in say the EURO which is falling like a rock in value costing you thousands of dollars a month, or would gold and silver which rises in value as your currency falls be a smarter decision?

Do not get me wrong, I am not trying to be a doom and gloom analyst. And I hope to be wrong, but with so many things pointing to an extreme global change it only makes sense to add some protection in the event something drastic does happen. My new book explains how to protect your capital in detail.

With the average fiat reserve currency since 1400 lasting between 80-105 years. With the dollar becoming the reserve currency in 1920 the odds point to the dollar being dropped within 3-5 years.

currency life

Gold Price Chart & Long Term Bullish Patterns

gold-halfway

 

Review Of the 1970-80’s Gold & Bubble

The chart below shows the price of gold, silver, the typical price bubble, and phased of the market which happens in all asset types at some point in their life cycle.

The red line shows the average market participants emotional state. Yellow line is the price of gold, and the grey line in silver.

1980bubbleSource: SRS RoccoReport & GoldChartsrus.com

 

Current Gold & Silver Bubble – Priceless

The last bull market in precious metals will be dwarfed by the next one which I expect to start later this year. Over the next 3-5 years currencies, metals, stock market, new policies in the USA, etc… are likely to change more than we ever thought possible.

2015-we-r-here

Source: SRS RoccoReport & GoldChartsrus.com

Priceless Gold Conclusion:

What does all this mean? It means money is going to move out of dying currencies and into physical assets like gold, and silver.

There are three different forecasting models for gold I have created. Depending how things play out in the next couple years the low target is $5,000 oz, and highest is $12,000 oz.

Starting to accumulate physical gold and silver as a long term investment and as insurance for your portfolio is critical. Small denominations are best because when prices sky rocket it will be tough to sell/trade a $12,000 oz gold bar compared to a gram of gold that will be worth $450, or better yet an ounce of silver worth $150.

With that said my key focus is on trading for income and growth through the use of exchange traded funds. And if precious metals are about to start another bull market there will be big gains in gold stocks which I will be trading.

Learn to trade, and get my trades live: www.TheGoldAndOilGuy.com

Chris Vermeulen

NEXT FINANCIAL CRISIS – Part III – OIL

Protecting Yourself with Gold, OIL and Index ETF’s

Chris-VIn 2009 I shared my big picture analysis, investment forecast and strategy in a book called “NEW WORLD ORDER ECONOMICS – What you can do to protect yourself”.  In January 2009 I forecasted that the Dow Jones Industrial Average was going to make a bottom within a couple months which it did. I also predicted the price of gold to start another major rally, and for crude oil to bottom and rally for years, which were also correct.

You can call it luck, skill or a mix of both… but the truth is that the markets cannot be predicted with 100% certainty. With that said, the US stock market, gold and oil look to be setting up for their NEXT BIG multiyear moves.


 

THE OIL BEAR MARKET IS ABOUT TO END

Crude oil and energy stocks are tricky to navigate in a situation like this where the equities market is nearing a bull market top.

It is critical to remember that when the US stock market turns down and starts a bear market virtually all stocks and commodities will fall in value including oil and energy stocks. Investors need to understand that even though the price of crude oil is nearing a bottom it could and will likely stay low for a considerable amount of time “IF” the stock market turns down.

Over the last 100 years we have seen nearly 30 bear markets. The average length of a bear market is 18 months and has an average decline of 30%.

I do feel currency problems and a war breakout will be bullish for both oil and gold. So if we get a bear market in equities, and a war oil and oil should rally while stocks in general fall.

But if we do not have those sever crisis’ then if gold and oil break below their critical support level which is the red line on the charts and a bear market in stocks start you do not want to be long stocks or commodities.

 

PRICE CHART OF OIL

The chart below shows the line in the sand for the price of crude oil. If this level is broken with a monthly bar close below $43 per/barrel I think $30-$33 will be the next stop and the low for the oil market. It seems everyone is bullish on precious metals and have been buying like crazy.

The points I made about gold which I talked about in PART II should be reread because if the support levels are broken oil will fall 40%, and gold another 35% from their current prices.

oilchart2

Below are some ETFs that takes advantage of rising oil prices. While there are other funds that cover oil stocks I feel they may not perform well during the equities bear market. Investing in physical oil is the best play at this stage of the game but when the equities bear market looks to be nearing an end, energy stocks will be the best place to invest.

oilETF

PART 3 CONCLUSION:

In short, I feel crude oil will has or will find a bottom within the next couple months. Long term the value is great, but we must be aware that if equities start a bear market it will be best close all equity positions and wait for the bear market to subside. When the time is right investing in crude oil and energy stocks which pay high dividends will generate life changing gains and an income stream. Patience is the key.

I hope you enjoyed this three part series which covers how to invest in indexes, gold and oil.

Join My Free Newsletter and Receive More Trading and Investment Ideas: www.GoldAndOilGuy.com

Chris Vermeulen

Investors Are About To Having A COW!

The past year month has been flowing into risk on assets like US equities. And when money is flowing into one investment class there is typically an outflow in others. Commodities in general have been beaten up bad but there is some money to be made here using the livestock COW ETF.

I is amazing how almost all us equity sectors have rallied as big as they have with many still making new sector highs. The only true weak areas in the market look to be commodities specifically precious metals, oil, natural gas, grains, sugar and livestock.

When the US equities market starts to sell off and volatility rises money should start to flow into some of these underperforming areas. At the moment COW is the only one that looks ready for a bear market rally currently.

Precious metals miners are another area I am looking to trade but I have not seen any signs why anyone should enter yet.

The chart below shows my analysis and forecast going forward. Those who prefer trading spot gold via FOREX/CDF/Spread Betting and aren’t a U.S. resident like me can use a company like AVAFX. The nice thing about trading this way is that you can trade 24/7, you get a lot of leverage, and it’s commission-free trading.
cow

To Have A Cow Or Not? That Is The Question!

The COW ETF could be a choppy ride for a while, but the upward momentum looks to have started as of today.

I am currently long COW with my peak target set around the $29 level.
Follow all my trades in real time at www.TheGoldAndOilGuy.com

Chris Vermeulen

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Money Will Rotate Into These Dead Investments

Seasoned investors understand that investments which are rocketing to new highs and all over the news will eventually fall out of favor and become a the poor performer, unwanted by market participants.

So it only makes sense that the underperforming investments will some day come back to life and provide opportunity once again. I covered this unique stage analysis in great detail in another report linked below.

If you want to see my forecast and charts I did on June 26th, 2013 pointing to the key investment levels for precious metals and miners which by the way have been dead READ HERE.

Current Stock Market & Commodity Investment Analysis

Two of the weakest investments have been commodities and precious metals since 2011. The Canadian stock market is heavily weighted with these resource stocks and is the reason for its under performance when compared to the SP500.

The time will come when commodities bottom and this will send the Canadian stock market back to the 2014 highs or better.

Take a look at the chart below. You will see the SP500, gold miner index, Canadian market, and the commodity index. What you notice see is that the US stock market has been the hot investment of choice, while commodities and precious metals have been falling for years.

No one is excited about investing in commodities or precious metals, and it makes sense. Anyone holding these investments has had a terrible couple of years and lost most of their capital. The last thing they want to do is buy more.

The good news is that this mind set eventually creates huge opportunities for the savvy, patient, investor like you and I. The hardest part is waiting for the psychology of investors to be completely out of favor, and only then can an investment bottom. This often takes years, and it has been for resources.

Gold Trading Newsletter

The 2007-2008 Resource Double Top and Drop & Gold Forecast

Bull market tops take months 6-12 months to form before price truly rolls over and starts a bear market. Most traders and investor try to pick tops but because this process is so painfully long, most get shaken out or give up well before the top has completed it’s topping phase.

What I am interested in is the Canadian index and resource type plays. The US stock market looks and feels as though it’s trying to form a topping phase but it is at best 6-12 months away from being a confirmed bear market.

Until then, I feel the US stock market will struggle and the focus should be put on investments that come to life during this stage of the stock market and economic life cycle.

Precious Metals Trading Newsletter

The Dead Always Come Back To Life for One More Rally

In short, I feel resources and the Canadian stock market will become strong areas of the market going forward several months. There are a few ways to play this, and timing will be crucial. My gold forecast I gave to subscribers today for short term trading looks like it could be a 25% mover.

You can follow my coattails as I trade at www.TheGoldAndOilGuy.com

Chris Vermeulen

,

The S&P 500 Is Going Lower . . . Sooner Rather than Later

On Wednesday, January 28, 2015 it was early afternoon during the trading day and I arose from my screens to go grab a drink out of my refrigerator. In the process of grabbing a drink, I went out to see what came in the mail and to get a few moments of fresh air before the final hours of a fairly quiet trading day were through.

Upon reentering my office, I noted that my screens were flashing red and the S&P 500 was under assault from the sell side. I scanned several independent blogs I follow for a headline and came across nothing. It was at this moment that I did the unthinkable and I turned on CNBC. I am embarrassed to even admit it frankly, because the drivel CNBC and most of the financial media spew out might as well be sales material for the sell side and their “long-term investment view that is always bullish”.

I saw the S&P 500 under pressure and then a subsequent bounce occurred. Nothing major, not even what I would call a major retracement, just some short sellers locking in a few profits I presumed. To my absolute horror, seconds later I recall seeing the headline at the bottom of the television screen on CNBC dictating that “stocks were off their lows”. It is no wonder CNBC’s ratings are absolutely terrible.

While I am picking on CNBC, the mainstream financial media is just awful. In fact, I do everything in my power to ignore all sources from televised media such as CNBC and Fox Business to written media like the Wall Street Journal. In every case, every day stocks are going higher and they can never go down. Certainly with central bank omnipotence and sorcery, it will not be long before no one has to work and we will just own long only stock portfolios. [Sarc :)]

Regardless, I am an options trader who has weathered the storm fairly well. I sell premium, focus on implied volatility, and I use probability to build my trades. My style is similar to Tom Sosnoff’s for those following him on TastyTrade or Dough, but I mix in a few twists. Regardless of my trading style, I have a strong historical track record that I am proud of which has handily beaten the markets for several years, although 2014 was one of my worst year in recent memory.

The reason I mention this is simply to state that I am a trader first, and newsletter operator second. I am getting rich with my newsletter at $20 per month let me tell you. Honestly, I just send out trades. No fluff, no nonsense. I tell it like I see it and I admit when I am wrong. My trades typically have a 60% – 70% probability of success at the time of entry based on implied volatility calculations involving probabilities. At the end of the day, I trade options because I am a junkie . . . I absolutely love derivatives and trading them.

As such, some of my recent research at various independent blogs paired with what I can see in the options marketplace has led me to believe that the S&P 500 Index (SPX) is going lower in the next 6 – 12 months. I want to be clear that I am not calling for a crash nor am I saying that the S&P 500 Index will remain under pressure, I am just simply calling for a correction in the very near future, although the situation could deteriorate into something much worse potentially.

However, here are a few data points worth considering which were originally posted by Tyler Durden at www.zerohedge.com:

“Revenue results are correlated to dollar strengthening, which has led to weaker revenue results and lower forward guidance that incorporates the FX headwind.”

Chart1

“Anecdotally, management commentary implies the dollar strengthening will lower revenue growth by 300-500 basis points. Foreign sales accounted for 33% of aggregate revenue for the S&P 500 in 2013. Based on our earnings model, a 10% strengthening of the trade-weighted dollar lowers S&P 500 2015 EPS by about $3.” To dig deeper into this, click HERE to view the entire article.

Obviously a strengthening U.S. Dollar is likely to push stocks lower based purely on earnings. However, valuations also matter and according to the same zerohedge.com article, “Consensus long-term growth estimates are slumping… which means multiple expansion is the only way to keep the dream of wealth creation alive.”

Chart2

I have to say that I get a great deal of sound, independent information from zerohedge.com which I find to be very useful for formulating trades. One more interesting chart I found over the weekend in a totally different post on their blog is shown below:

Chart3

So according to more than one article on zerohedge.com, the fundamental picture for earnings is being weighed down by a strong U.S. dollar. The earnings and valuation backdrop in the same article is also concerning in the intermediate to longer-term. Lastly, when looking at the correlation between the Commodity Index and the Baltic Dry Index, we see a sudden shift that places the S&P 500 Index in a major divergence compared to historic norms. Now that I have leaned heavily on zerohedge.com to handle the fundamental side of my research, it is time to dig into the derivatives side of the trade equation.

When looking at the S&P 500 Cash Index Options (SPX), another interesting observation is notable. When looking out to the June monthly expiration and Friday’s closing price in the S&P 500 Cash Index of 1,995, an interesting standard deviation skew appears. The June 1,525 Put is exactly 2 standard deviations from the current price on the downside. The June 2,200 Call is also 2 standard deviations from the current price.

This means that the market is pricing in about 205 points of upside or about 10.27% potential upside. Conversely, the two standard deviation move to the downside is roughly 400 points or about or roughly 20.04% potential downside. I would point out that the marketplace is pricing in a move of almost 2 times the severity on the downside in the S&P 500 Cash Index options. Pair this market expectation with the fundamental data discussed above, and the potential for serious downside does exist.

I want to be clear that I am already leaning short the S&P 500 Cash Index (SPX) in my portfolio as my beta weighted Delta against the S&P 500 Cash Index (SPX) is negative overall. However, I have not taken an actual short position in the S&P 500 Cash Index (SPX) or its cousin, SPY . . . at least not yet.

However, after seeing the U.S. Dollar strengthen recently I was able to enter a February call credit spread in EEM (Positive Time  Decay / Profitable if EEM moves lower) for the members only portfolio. That trade will likely be closed for some strong profits in a short period of time. The option trade was taken on January 23rd for a credit of 0.37 per spread.

Members of our ETF trading newsletter also has a position in an emerging market fund that is setting up for potential 60% move!

The trade could have been closed on Friday for 0.06 debit per spread. The difference, representing the profit on the trade is 0.31 or $31 per spread. The maximum risk per spread was $113, so the actual return based on maximum risk was 27.43% based on Friday’s closing prices. While this is a great return, not every trade works this well and produces profit this quickly.

While I will be locking in profits in the EEM February Call Credit Spread early this coming week, I intend to take a similarly bearish trade in the S&P 500 in the near future. I may look to go out as far as March expiration to take in additional premium and to buy myself a little more room on my upside breakeven price. However, I will likely move the overall portfolio to a slightly more negative bias in the near future.

Going forward, when I highlight trades I intend on discussing the trade structure used in the future as well as an ongoing account as to which trades were profitable and which trades did not work. I am excited about the service I am offering and the new, no-nonsense pricing model. I realize newsletters are really a dying business model, but I simply have too much fun writing about my trades and running the service. Granted a little extra spending money never hurt anyone, but I am having too much fun to quit!

Happy Option Trading!
Technical Traders Options Team & Chris Vermeulen
www.thetechnicaltraders.com/options/

Is Borate a Actor or Rare Earth Element Opportunity?

Over the last couple of months I have started sharing some insights on the penny stock market. Those of you who follow me know I have been steering clear of the penny stock market since 2011. Back during bull market from 2009 – 2011 investing in these types of stocks was highly rewarding but I don’t touch them during bear markets.

The second half of 2011 this pocket of the stock market collapsed and turned down. Unfortunately barely anyone watches this index so when it turned down in 2011 investors continued to hold onto their penny stocks and expected them to continue to rally with the broad market. But the rally never happened, or at least not yet.

This index is down 72% which is a tough drawdown to hold and not be concerned with but the good news is that it may be coming to an end.

tsx-venture

What has me intrigued is the fact that this index is testing its 2008 lows which is a great place for it to bottom. And why is this important you may be asking? Well, a rising index has the tendency to move 3 out of 4 stocks with it. And if you happen to fine which sector or hidden gem stocks have the most potential business growth you stand to make a lot of money.

For example the biotech sector was dormant for nearly 10 years from 2001 to 2011. Biotech’s are up 370% on average since the 2011 low. And know that if a sector/index is up 370% you can bet there are a ton of stocks up 500%, 1000%, 4500% also.

 

What are Borate and this Rare Element That I like?

Borate is a chemical compound which uses the chemical element Boron. Boron is not a resource many people know and from my knowledge there are only two companies that produce it and they control roughly 80% of the market.

Borates are used in 500 products including some of the fastest growing areas like borosilicate glass (LCD screens), ceramics and porcelain enamels, agriculture, insecticides, fire retardants, and high-tech products like lithium batteries, and even medicines. For example an iPad uses 9 grams of Boron in the special Corning glass.

The price of Boron has rocketed higher in recent years with all the new uses it has. From 2009 to 2012 the price rallied from $250/t up over $700/ton.

 

How to Play It

The two big players in Boron are publicly traded company Rio Tinto (NYSE: RIO) and Turkey’s state-owned Eti Maden AS. A position is Rio Tinto does not really give you much exposure as Boron is a small portion of the company’s overall revenue.

The leaves only one other company, Erin Ventures (TSX Venture: EV). Its tiny, its a penny stock, but it has a ton of great things happening from what I have researched and from communication with their CFO.

This little company is a 100% owner of a massive Boron rich properly in Serbia. The PEA reports show low mining costs, extremely high grade boron, enough material to last 21 years with a 15 month payback which is insanely fast… They expect to have $97,000,000 per year in revenue once the property is setup and running.

erin

 

Conclusion:

I like the looks of the long term chart for Erin Ventures. The pattern overall is bullish but with the Toronto Venture Exchange having been in a bear market since 2011 it has pulled the share price down with it. When the venture stocks bottom which could be any time now, keep your eye on this company.

Not very often you find a commodity that only has 1-2 companies in the world that control a substance. It’s almost a monopoly really. And with Erin Ventures being the only pure Boron stock which is 100% owner of a 21 year production deposit of higher grade Boron than the competitors I have to think this will be huge in due time.

Erin Venture is about to close a round of funding with their private placement for shares in the company so they can start their Boron project in Serbia. If I recall correctly they are looking for all investors especially small ones as they want quality investors holding shares. If you want to be a part of this placement call: Blake Fallis 1-250-384-1999 is their CFO who can provide more info about the company and private placement if you are interested.

Chris Vermeulen – www.TheGoldAndOilGuy.com

Disclaimer: I do not own shares of Rio Tinto or Erin Ventures and I was not paid to mention them in my article.

Crude Oil Slides to Multi Year Lows and What to Expect

Looking back to 2007 (seven years ago) we have seen the price of crude oil perform incredible price swings. No matter the time frame in which we observe price when an extreme price spike takes place due to news/event, statistics show that half if not all the event driven price spike will eventually be negated in the future.

The perfect example of this is the rubber band affect. If you pull an elastic band in one direction, eventually when it breaks or it’s released, the band will retrace back to the norm and then go in the opposite direction. You can see this on the chart from 2008 high of nearly $150 to the 2009 low of $40. Price then lost is momentum and has been somewhat range bound from 2011 – 2014 right in the middle at $95 per barrel.

Observing the price chart of oil below there are many technical indicators and patterns at play. The first important pattern to identify is the series of higher lows shown with the green trend line sloping upwards.

A rising trend line that has multiple pivot lows (bounces up the trend line) the price of oil creates what I call a perfect storm for waterfall type selloff. This is exactly what we have seen over the past 3 months.

Each time one of the pivot lows are breached, the stop loss orders are triggered for investors. This causes a flood of sell orders forcing price lower to fall below the next pivot low etc… This may look and sound easy to trade, but keep in mind this is a monthly chart, and short term traders are not trading this long term time frame. Only investors would be focusing on a move that would take months to a year to unfold.

The second key indicator to look at is the 61.8% Fibonacci retracement level. This level typically acts as a support level for a small bounce usually. Because the 61.8% level is also in alignment with a previous consolidation, and a pivot low, both which have been highlighted on the chart, I suspect a bounce around the $65 level should take place.

The final potential bottom could take place near the 2009 low. It is a long way away but anything is possible and what we think is most unlikely to happen is exactly what the market does sometimes.

crudeoil

 

Crude Oil Conclusion:

In short, I think what crude oil is doing is healthy and needed for several reasons. If I let my bias/option shine through, I feel the big oil and gas companies have been taking advantage of us with their ridiculously high gas prices over the last seven years.

The multi-billion dollar, cash rich corporations need a little wakeup call.  And the hair cut in their share price should be great for investors. This allows them to build or re-enter new positions at a better price with a higher dividend yield.

I will be watching the hourly and daily charts for a bottoming/bounce formation in the next week. But any bounce could be short lived as sellers appear to be aggressive still.

Receive my personal trade alerts via email and SMS text alerts at www.TheGoldAndOilGuy.com with a 50% Black Friday Offer Today

Chris Vermeulen

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Bonds-the fourth quarter trade of 2014

If you have been paying close attention to the stock market, market internals/breadth, and bonds for the past three months, you’ve likely come to the same conclusion that I have.

The US stock market is showing signs of severe weakness with the market breadth and leading indicators pointing to a sharp correction for stock prices.

With fewer stocks trading above their 50 and 200 day moving averages each week, while the broad market S&P 500 index continues to rising, this bearish divergence is a red flag for long term investors.

When a handful of large-cap stocks are the only things propelling the stock market higher while the majority of small-cap stocks are falling you should keep new position sizes smaller than normal and start moving your protective stops up to lock in gains/reduce losses in case the market rolls over sooner than later.

Small cap stocks are typically a leading indicator of the broad market. The Russell 2000 index is what investors should keep a close eye on because it’s the index of small-cap stocks. Since March of this year, the Russell 2000 been trading sideways and actually making new lows. This tells us that big-money speculative traders are rotating out of the stock market and into other investments like high dividend paying stocks, blue chips, and likely bonds.

Looking at the chart below I have overlaid the S&P 500 index and the price of bonds. History has a way of repeating itself; although it may never feel the same and the economy may be different, price action of investments have the tendency to repeat.

In 2011 we saw the stock market and bonds form specific patterns. These patterns clearly show that money was rotating out of the stock market and into bonds. During times of uncertainty in the stocks market money has the tendency to move into bonds, as they are known as a safe haven. Bonds tend to reverse before the stock market does, so if you have never tracked the price chart of bonds before, then you should start.

SPXvsBONDS

From late 2013 until now bonds and the stock market have repeated the same price patterns from 2011. If history is going to repeat itself, which the technical and statistical analysis is also favoring, we should see the stock market correct 18% to 30% in the near future. If this happens bonds will rally to new highs.

It’s important to realize the chart above is weekly. Each candle represents five trading days, and four candles represents one month. So while this chart points to an imminent selloff from a visual standpoint, keep in mind this could take 2 to 3 months to unfold or longer. The market always has a way of dragging things out. If the market can’t shake you out, it will wait you out.

So if you are short the market or planning to short the market be very cautious as it could be choppy for the next several weeks and possibly months before price truly breaks down and we see price freefall.

To get my pre-market video analysis each day, and trade alerts visit: www.TheGoldAndOilGuy.com

Chris Vermeulen