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How to Take Advantage of Panic Selling for SP500 and Gold

Did you close out any long positions today? Well if not then you are one of a few!

Today (Wednesday) the market gapped down 1.5% at the opening bell which set a very negative tone for the session. Volume was screaming as protective stops triggered and traders close out positions before prices fell much further. This gap seemed to have caught several traders off guard but those of you who follow my newsletter knew something big was brewing and to keep positions very small.

Just before the close on Tuesday I had a buy signal for the SP500 which was generated from the extreme readings on the market internals. After watching the market chop around and get squeezed into the apex of the rising wedge the past 3 weeks I knew something big was about to happen and I did not want to get everyone involved because I felt a large gap was about to happen and the odds were 50/50. Instead we passed on the technical buy signal and waited to see what would happen Wednesday.

Below are a few charts showing one of my extreme reading indicators I use which helps me to identify possible short term bottoms.

SP500 – SPY Exchange Traded Fund

This daily chart of the SPY etf clearly shows that when we see panic selling in the NYSE which I consider 15+ sell orders to each buy order to be PANIC SELLING. This is shown using the purple indicator at the bottom of the chart. Today there was an average of 37 sell orders to every buy order which tells me the majority of traders are closing out all their long positions.

In an uptrend this indicator works very well and can help time a bottom within 1-4 days. As you can see on the chart below we just had a huge sell off and everyone seemed to be exiting their positions. This panic selling tends to carry over for a couple sessions until the majority of traders around the globe are finished selling.

The problem with this indicator is that in a down trend we tend to get these panic selling spikes regularly which means this time it may not work out because of the trendline break today which I think has officially changed the trend from up to down. Because of this possible down trend starting I feel its best to wait and see if it’s a dead cat bounce or if there are real buyers behind it, then we will take action to go long or short the market.

Market Internals – Put/Call Ratio & NYSE Advance/Decline Line – 60 Min Charts

Here are two charts which are currently at extreme levels. This typically means we a bounce should occur the following day or a gap higher. If you did not know there was a strong trendline breakdown today you most likely would have taking a small long position into the close.

The Put/Call ratio when above 1.00 means more people are buying put options, meaning they are leveraging themselves to make money if the market drops. As a contrarian indicator, if everyone is buying leverage to the down side then they should have sold their long positions already. That would mean most of the selling has already taken place in the market thus it should have some upward bias in the near term.

On the other side you can see the NYSE A/D line which shows how many stocks on the NYSE are advancing and how many have moved lower. When this indicator is below -1750 then we know the market is oversold on a short term basis and there should be some upward bias in the near future.

Now Lets Take A Look At Gold

Gold was left on the side of the road today as traders and investors focused on the equities market. I was actually a little surprised that it didn’t make a big move today because the US Dollar rocketed higher for the entire session. Anyone who has been watching gold closely already knows that gold is doing its own thing now… Some days it moves with the dollar, other days it does not… its become much more random than it used to be.

Anyways it looks to be forming two patterns… first one is a bull flag. If a breakout to the upside occurs that would send gold to the $1230-40 level.

The second pattern is a mini head and shoulders pattern which would send gold down to the $1180 area if the neck line is violated. It is a very tough call for gold.

Mid-Week Technical Traders Update:

In short, it’s going to take a day or two before we get a feel for the SP500 as we wait to see if it bounces with volume behind it. I personally would like a bounce so we can short it. It is unfortunate how the market broke down today. We were so close to getting a really good setup in either direction but the FOMC meeting shook things up and caused the large gap which in turn made a large group of traders miss that beautiful drop… It’s frustrating when you wait for something only to have a piece of news mess things up. That’s just part of trading though.

As for gold, I feel it’s a 50/50 trade and could go either way so I am not going to take a position right now. I’m just going to wait for the market to tip its hand a little more before I jump.

I hope you found this information useful. If you would like to receive these trading reports, updates and ETF alerts be sure to visit my service at: www.TheGoldAndOilGuy.com

Chris Vermeulen

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The Gold & Silver Precious Metals Correction

Wednesday May 26th
It’s been an exciting week for traders as volatility levels are through the roof and the broad market is moving up and down like a yoyo. You cannot take your eyes off the screen if you have a large amount of money invested as you can quickly find yourself with a large profit or loss in the matter of minutes….

Although we have seen stocks jump around the past few days precious metals have held strong with very little volatility. This is because of the economic fears looming for the US and other countries of possible financial collapse. This fear is helping to boost gold and silver prices because they are seen as the safe haven. Also we are seeing money move in the US dollar because the country is still seen as a leader in many ways helping to boost the US dollar.

Below are a couple charts on Gold and Silver ETF’s showing the end of last years rally and the correction in prices which are now looking to setting up for another leg higher.

GLD – Gold ETF Trading Vehicle – Daily Chart

I called this chart “The Golden Correction” because it literally is. We saw prices rally late in 2009 finishing off with a parabolic spike which we know is not sustainable and almost always results in a VERY sharp drop. This correction unfolded as planned with an ABC retrace which shakes out weak positions. We then we saw a reverse head & shoulders pattern form which again also shakes out weak positions. Once the neckline was broken from the reverse H & S the new up trend was started providing a couple trading opportunities for us along the way. The most recent low risk entry point can be seen on the chart as gold prices dropped back to a key support level.

ETF Trading Newsletter

Gold Futures Price – 60 Minute Day Trading Chart

Gold has been showing some very bullish price action the past week forming several mini bull flags with confirming volume levels. I think we should see gold pop another $5-10 bucks in the very near future if not continue higher for several days.

Index ETF Trading Newsletter

SLV – Silver ETF Trading Vehicle – Daily Chart

Silver formed much of the same patterns as gold but with much more volatility. Also silver has yet to break the 2009 high which is surprising but with a large part of silver being use for industrial purposes it does make sense as the economy is not as strong as it was thought to be in 2009. Silver carries much more risk when trading because it has more random moves and increased volatility.

ETF Trading Strategy

Mid-Week Precious Metals Trading Conclusion:

In short, gold and silver are in an uptrend and looking strong. Both are currently trading at short term resistance levels on the daily chart which has caused them to stop moving up today (Wednesday May 26th) but on an intraday basis they look solid and could break though these resistance levels.

That being said buying way up here adds a lot more risk because a good chunk of the move has already been made and if prices do roll over and start heading back down the next support level is several percentage points away for placing a protective stop with the proper amount of wiggle room.

If Trading Gold, Silver and Index Futures and ETFs interested you check out my trading services at www.TheGoldAndOilGuy.com

Chris Vermeulen

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Gold & Indexes Melt Up Into Earnings?

Gold and the stock market continue to trade within a tight range this week. While the long term trend for both stocks and metals are up, and the charts look bullish I am not buying at this level because the market is over bought.

Chasing prices higher especially after a run this large is not the right move in my opinion. I did mention last week that we could see stocks continue to grind higher going into earning season which is about 2 weeks away still. I think that could happen, and if the same thing happens which we saw last January with great earnings (which I think we will see again) then watch out for another drop.

In short, if earning are good which they have been and everyone is expecting the same this April, then the typical Buy on Rumor (pre-earnings rally) which is what we have now, and Sell on the Good News in April then all the suckers thinking the market should rally will provide some liquidity for the smart money to sell at a premium.

That being said, if the earning are not good, then people will sell on that news also because the market is just waiting for news to sell… It’s the exact same situation as last time, that’s how I am feeling about it.

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Trading Bottoms in the Broad Market

The past few months I have been really focusing on buying dips in the broad market after I see a mini 3 wave correction. I use a mix between price patterns, volume, market sentiment, and market internals and of course years of watching how the market moves and evolves during times of economic expansion and contractions. This is represented on the chart below as the purple line.

This chart below shows one of my custom indicators which have successfully timed intermediate market bottoms 1-2 days before everything started to rally higher. This is one of the reasons we bought into the selling on Feb 5th and again on Feb 25th using ETF’s.

Because this is a new etf trading strategy and type of trading signal to be used in a bull market I still have to fin tune it a little more because I want to be sure we don’t get shaken out of positions to early which is what happened to a couple ETF’s we got into Feb 5th.

What happened was were buying when EVERYONE was bearish and panicking out of positions making it an extremely emotional time for traders and myself to buy into the market. This is not an easy task… I still have trouble pulling the trigger on these days and some times I just sit back in my chair and with one quick poke from my finger I hit the enter button to buy. My heart pounding just from that… but add few thousand followers on the pile relying on quality analysis and you start to understand what im going though. Not to mention the hundreds of emails with people telling me the market is about to crash, we should be shorting etc…
Crazy times for sure 🙂

Anyways, I will be provided these new signals for subscribers which is very exciting. Because my focus is on managing risk and keeping it as low as possible this will be a learning curve as I apply it to the service and set protective stops which is very difficult to do during a time of high volatility in the market. We can see the market move 2-4% in one day during these times so if we are trading the TNA 3x leveraged Russell2000 fund we could see our position drop 12% in one day. Bigger risk, bigger rewards as they say.

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GLD Gold ETF – Daily Chart

Gold and silver are currently trading in limbo at the moment. It’s tough to say what’s going to happen here which is why I continue to wait for something with a high probability of winning before putting any money to work.

The daily chart clearly shows a multi month bull flag, ABC retrace, Reverse Head & Shoulders, and wedge. All of which are very bullish. It’s just a waiting game as I do not jump the gun on any move because the market has the tendency to catch everyone off guard and I don’t want to be one of them. Been there, done that to many times….

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Mid-Week ETF Trading Signals Conclusion:

Keeping things short and simple, I think the stock market is in a major bull market. I am not buying anything until we get a pullback of some type. If the market unfolds properly we could have a great shorting opportunity (profit from a falling market) happening any day now, so that is my main focus at this time.

If you would like to Receive My ETF Trading Signals please join my newsletter at: http://www.thegoldandoilguy.com/specialoffer/signup.html

Chris Vermeulen