Commodities Are Leading The Market Lower

Gold, silver, and copper are lagging the market and could signal a downturn after the light volume holiday period comes to a close. Additionally, the NDX is also lagging the market which is telling us that investors are putting their money into less risky assets like DOW stocks.

Gold Extended From 3 Yr Trend, Covered Short In Q’s

Gold is extended from its 3 year trendline and will be a much better buy when it comes in for a tag of that line. Today I also took 7% profits on SQQQ, no need to be exposed to options expiration week volatility.
_________________________________________________________________________________________________

Here’s an interesting chart I came across after I made the video:

This is a relatively new ETF that trades 2x inverse to the performance of gold miners. Note the tail after the pierce of support during today’s trading. If DUST stays above this level on a closing basis, it is a buy for what could turn out to be the right shoulder in a beautiful head & shoulders reversal. The best part about a long play here is your stop loss should be any close below $40.05, which would amount to just a $.60 loss on a $40 ETF. The upside in the immediate short term will be as high as $43-$44 and it could run all the way to $48 before peaking again. I will disclose this if I enter a position.

Winners – GWG, MCP, Entry On SQQQ

Winners:
GWMGF – +23%
MCP – +20%

Loser: ZSL -4.5% exit price – $18.48.

ZSL had some solid gains Friday but the gap lower on Tuesday is what caused me to let this one go. Good portfolio management limited the downside risk on this one and silver has since surged so this turned out to be a loser, but not a detrimental loss.

On June 16th I said the bottom was put in on Great Western (GWMGF) and entered at $.623. The stock traded lower during the day making a bottom at $.574 but no new low was made after that day and the stock is now trading at $.81 for a gain of 23%. Short term downside would be the 50 MA and short term upside would be $.90.

On the same day I said that MCP was also a safe buy as long as it stayed above the $46.40 low and since then, it is up 20% though MCP was up as much as 25% a few days ago.

With the tag of the double top today, I went short the Q’s via SQQQ at $21.98. The reason why I like this short so much is because the upside is for the Q’s to fall back to 2840, (2%) (roughly 4% on SQQQ) and 2770 (4%) (roughly 8% on SQQQ), while the downside is less than 10 points. Confirmation above 2880 would be a sell but that level is only 8 points away so the downside risk is very limited.

Buy Program Saves Equities As VIX Rallies

The equity market was literally on the ropes today as the VIX rallied to an intraday high of $24.65 (15%) but closed off of the highs as $22.63 as a buy program saved the markets in the afternoon session. Let me stress this, the bears had this market by the throat and had managed to breach the last line of defense of $126.50 on the SPY which would have been the last level before the March low of $125.50 and ultimately the 200 MA. However, the market was saved by a buy program in an extremely volatile day before options expiration. I believe that today’s action translates into a rally tomorrow.

The closing candle today is a spinning top, which is a sign of a pause or indecision. How can we tell if this pause will be bullish or bearish? The answer is to look below at the cash S&P.

The cash S&P actually tagged the 200 MA during the lows of the trading day. This rejection in combination with the spinning top candle and the volume to match yesterday’s almost guarantee’s a positive day tomorrow, so long as no more bad news comes out of Greece concerning the Euro.

Furthermore, the Nasdaq made a bottoming tail on the daily chart. Yes it has confirmed below the 200 with today’s close, but it has put in a short term bottom with the rejection of the absolute low that was put in on March 16th. AAPL and NFLX were destroyed all day but managed to tough out a rally which helped the Q’s form a hammer candle which ultimately means that we’ll see some life in the market for at least the next trading session.

One thing that we must be aware of, we will see the mainstream media question the market and attempt to scare investors into shorting due to QE II coming to an end. This is the perfect contrarian indicator for a fairly decent sized rally off of the lows that we are in the process of putting in now. I will go long the market when I see that opportunity however it is not certain that we have yet put in the bottom and we still have what is likely to be a volatile day ahead of us tomorrow as well as a Fed meeting next week. So until then, remain very cautious and be sure to use stops on all of your positions.

Markets Volatile Days Before Options Expiry

There was plenty of intraday volatility today especially in the silver market as we inch close to the options expiration for January 11. The VIX was up 10% and is now much farther away from it’s long term support level. Many traders use the VIX as an inverse indicator to what the market is doing and a bounce off of support may mean that a stall in the equities market may be in order. I said before that I’m not calling a top in equities until there is confirmation of a correction, however I do think that this is worthy of mentioning regardless and even so, this bear market rally has gone on for quite some time and could see a correction soon before continuing. For the record, I still remain as bearish as ever on the fundamentals.

Long term support for the VIX adjusted itself from $15.23 to $15.40 a few weeks ago and has since made only one serious attempt at testing that low again. Despite the big move to the upside today, the slow stochastic has us only at 25.87, meaning that there is plenty of momentum for a run at the top resistance line.

Added support to my claim is the key reversal in QQQQ. Weighted heavily in AAPL, (which also reversed violently today) Powershares QQQ proved to be well overbought prior to options expiration. Though news regarding AAPL and Steve Jobs’ health doesn’t particularly effect fundamentals of other companies, it does provide an argument that if AAPL is too risky to hold because of Jobs’ health, then what is the rest of the market worth? In any case, there’s some food for thought for those who may be anticipating a possible retracement in equities.

Silver also reversed intraday thought it managed to close near the open this morning which is about in line with respective closes and open of the last 4 trading sessions. There appears to be some indecision as the price fluctuates through the $28.75 level. Today we made another run at the 20 Day MA though were unsuccessful. In addition, the bears also made a run at the 50, but they too failed. I think it’s possible that we stall here a little longer as the market decides what to do before options expiration.

In the meantime, that may give the MACD a chance to cross the 0 level for the first time in at least 5 months. That would serve as an indicator that silver has fully come down from overbought, as if price activity, the RSI falling below 50, and the stochastics didn’t already indicate that. In any case, from a trading perspective, wait for confirmation of a move either way, and as always, I remain extremely bullish on silver’s long term fundamentals.

Key Reversal

My outlook recently has been that the market is massively overextended, and today’s trading provides overwhelming proof.

Key Reversals include: SLV, GLD, AAPL, GOOG, SPY, QQQQ, BAC

In other words, the reversals today included the largest bank in America, gold, silver, the best company in America, the Nasdaq 100, the S&P 500 proxy, and the best dotcom company of all time. That means you should be running from equities right now.

I want to continue on about SLV since it is without question the story of the day in my opinion.

The charts speak for themselves here. Volume for today was almost 10 times the average daily figures and it happened on a day where we had a key reversal as well.

It’s more than safe to say that we’ve hit a top. Repeat after me: “I’m bearish”.

One more thing, the S&P 500 has formed a “short day” formation over the last few trading sessions and has failed to break the 1226 level again after touching it last friday. I speculated that it would hold, and it appears that it will for sometime.

Fist Fight Between Bulls and Bears at 1226 on the S&P 500

On Thursday I noted that the key 1220 on the S&P had been compromised and had looked like yet another bull victory. However this morning, the bulls found the resistance at 1226 despite many attempts to drive the market higher. Later on in the day, with just ten minutes left to trade they attempted yet again to break the resistance, but to no avail. It was quite a show. I might be called names for saying that this market could be at a peak right here.

The buying volume in the last ten minutes was significant. (No I’m not talking about the spike when the market closed, but the 4 bars leading up to that.)

It is tough to go against the grain here while everyone else is bullish but the fact still remains that this is the most technically overextended move we’ve had in a long time. I haven’t seen anyone who is bearish getting any air time, it seems to me that anyone who is being interviewed is a bull which sends up a red flag to be cautious of the recent upward gaps.

The IXIC or Nasdaq is easily the most overextended of the three major indices. Notice how it is outperforming the DJIA and S&P 500 and at the same time is doing so on the lowest volume and has been creating bearish divergences along the way on the slow stochastic. The rally also looks similar to the previous one this year which was on low volume, as is this one, but on even lower volume.

The long term chart of the S&P 500 reveals a lot about where this index has been, and where it may be going. Despite what you may be hearing, the technicals always matter even though some would have you believe that this rally in equities will last for centuries. The stimulus and the Fed’s QE moved the S&P 450 up by points back in 2009, at the expense of sacrificing the 14 points on the USDX, but the most shocking part here is that this year, it recently had to take 12 points off of the dollar index to make the S&P move just 200 points. Granted it has been over a shorter period of time but with the plan for QE II already set in place for the next 9 months, it appears that this market may be on its own for a while which calls for less speculation about the Fed, and perhaps a more sound analysis of the market. Before the Euro Debt Crisis the dollar began to cup up from the bottom and shortly thereafter the stock market sold off. I think that any retracement in the dollar could be a leading indicator of a selloff in equites.

Another thing that stands out is gold. Gold has the biggest fundamental reasons for being higher during times of expected inflation, but then why did gold and silver create a cup and handle, when the regular markets did not? I think that gold could be a leading indicator for the rest of the market, as it has been for the past 18 months.