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SP500 Internals, Dollar & Gold Pre-Week Analysis

After a fierce equities rally on Friday, which I figured would happen, just not that strong; I have to wonder if there is some event or major decision in the works we don’t know about?

Friday’s rally could be something simpler like window dressing by the funds. This is when the funds buy up all the top performing stocks for month end reporting. They do this so that their investors think they are on the ball and know what they are doing. Window dressing will end Monday and from there we could see some profit taking (selling) start. But for all we know Obama could be extending the tax cuts for everyone or cutting payroll taxes etc…

It would only take one of these events to trigger a sharp up move in the market and that could be what Friday’s move was anticipating. That being said volume has remained light and during low volume session the market has a tendency to move higher. Sell offs in the market require strong volume to pull the market down, so until volume picks up there could still be higher prices just around the corner.

Let’s take a look at some charts…

SPY – SP500 60 Minute Intraday Chart

Last week we saw the market reverse to the down side with a strong end of say sell off. That set the tone for some follow through selling and for any bounces to be sold into. That being said, the market always has a way of surprising traders and it did just that on Friday gapping above Thursday’s reversal high causing shorts to cover and the typical end of week light volume drift to help hold prices up.

NYSE Market Internals – 15 Minute Chart

I like to follow some market internals to help understand if investors are becoming fearful or greedy. It also helps me gauge if the market is over bought or oversold on any given day.

These three charts below show some interesting data.
Top Chart – This indicator shows me if the majority of shares traded are bought or sold. When the red line spikes up and trades above 5 then I know the majority of traders are buying over covering their shorts. I call this panic buying because traders are buying in fear that the market will continue higher and they will miss the train. When everyone is buying you know a pullback is most likely to occur.

Middle Chart – This is the NYSE advance/decline line. When this indicator is below -1500 then the market is over sold and bottom pickers/value buyers will step in and nibble at stocks. But when this indicator is trading over 1500 then you know the market is overbought and there should be some profit taking starting any time soon.

Bottom Chart – This is the put/call ratio and this tells us how many people are buying calls vs put options. When this indicator is below 0.80 level more traders are bullish and buying leverage. My theory is if they are buying leverage for higher prices, then they have already bought all their stocks and now want to add some leverage for more profits. When I see the majority of traders bullish then I an sure to tighten my stops (if long) as top my be forming.

Putting the charts together – When each of these charts are trading in the red zone know I must be cautious for any long positions because the market just may be starting to top. Or a short term correction may occur.

UUP – US Dollar Daily Chart

The US dollar has been under some serious pressure with all the talk about quantitative easing (printing money). Obviously the more the Fed’s print the less value the dollar will have. The chart below shows a green gap window which I think once it is filled should put the dollar in a oversold condition for a short term swing trade bounce before heading back down. A bounce in the dollar will put pressure on equities, gold and oil.

GLD – Gold Daily Chart

Gold continues to grind its way up. This move is looking very long in the teeth and pullback will most likely be sharp.

Weekend Trading Conclusion:

In short, equities and gold continue to grind their way higher while the US dollar continues its grind lower. When I say the market is grinding I am implying the market is over extended and a reversal any day should occur.

Financial stocks like Goldman (GS) which typically leads the market has been strongly underperforming over the past week. Insiders were selling GS very strongly which is strange and makes me wonder what’s up there? With the financial stocks underperforming it sure looks like a market reversal is just around the corner.

If Friday’s rally was simply window dressing by the funds then it should end on Monday and with any luck we will see a sharp reversal to the down side early this week.

You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me toe get more into across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward.

Let the volatility and volume return!

Chris Vermeulen
www.TheGoldAndOilGuy.com

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DIA, UUP, GLD, SLV & XLE Funds Shift Momentum?

Today we had a reversal day for the broad market, us dollar, precious metals and oil. The market is over extended. We have seen the market rally 20% since the July low.

Inter-market analysis is important to understand because everything is related in some way. The next month will be very interesting with the US dollar trying to rally, which will put pressure on precious metals, stocks and commodities.

DIA ETF – Dow Industrial Fund
Stocks look to have formed a similar pattern as the March rally this year. The market has the same feel and price action that we saw during the June high, which is telling me we should move stops up to protect profits. Wednesday the market had an intraday reversal and that is a sign of weakness. The past four trading day’s is the same as the July bottom (multiple Doji Candles). Doji candles indicate a possible reversal.

DIA ETF Trading Newsletter

DIA ETF Trading Newsletter

Broad Market Volatility Index
Here is a weekly volatility chart that shows we are at a long term support level. The saying is, buy when the VIX is high, sell when the VIX is low. Just to be clear, I am not saying sell everything. I am just pointing out that the market is ready for a multi week correction. I am tightening my stops and limiting my position size for new log positions.

VIX Volatility Index Trading

VIX Volatility Index Trading

UUP ETF – US Dollar Intraday Price Action
The dollar sold down Wednesday, then rallied very strong into the close, indicating a shift in momentum. The dollar has been trending down for several months and ready for a bounce.

UUP US Dollar Trading Fund

UUP US Dollar Trading Fund


Precious Metals Under Pressure

Below is a chart of Gold and Silver showing the weakness on Wednesday and the sharp sell off late in the session, when the US dollar started to rally.

Precious Metals Trading Newsletter

Precious Metals Trading Newsletter

XLE Energy ETF – Intraday Chart
Energy sector moved down in the morning and managed to wiggle its way back to positive territory late in the day, but when the US dollar rallied, crude oil and the energy sector sold off sharply.

XLE Energy Trading Newsletter

XLE Energy Trading Newsletter

Inter-Market Analysis Conclusion:
In my opinion things look to be setup for a multi week shift in momentum. It looks like the US Dollar will bounce putting pressure on precious metals, stocks, and commodities like crude oil.

Stocks look ready to correct and a bounce in the dollar will trigger the correction.

Gold is at a major resistance level, and taking a breather at this level would be normal price action. Gold has also been trading in sync with stocks, so this relationship is most likely still in place. If stocks move down, so will gold.

Crude oil is having a tough time moving higher and with Wednesday’s higher than expected oil inventory levels, there will be more down side pressure.

Currently we have several profitable position and we will be tightening our stops and looking for new opportunities in the coming days.

If you would like to receive my Free Weekly Trading Reports for ETF’s or Stock Trading Reports please visit my websites: www.GoldAndOilGuy.com and www.ActiveTradingPartner.com

Chris Vermeulen