Everyone’s Talking About The SP 500 Symmetrical Wedge – US Total Debt Reaches $15T

If you have not heard by now, the S&P 500 is trading within a symmetrical wedge pattern, which has most in the investing community buzzing. Because symmetrical wedges are generally neutral, they attract quite a bit of attention since no one knows for sure which way it will break. The point I want to make about this wedge is that way too many people are watching this pattern for us to simply buy the first sign of a breakout.

When a more than average amount of people are watching a particular chart pattern, the success rate generally declines. This pattern will play out as a bullish continuation, or a bearish reversal, whichever it is, confirmation must be utilized on any breakout or breakdown of this wedge. Confirmation being a secondary close below the low or above the high of the breakout candle. This method keeps traders out of bad trades, and prevents needless stop outs.

Currently I am short the USO. I took profits on 2/3 of my initial position after the pullback from the 200 MA pierce, and added 2/3 back today after the gap higher. Today’s move looks like an exhaustion gap as it tagged gap window of $39.80 and the pivot high of $39.50. Additionally, the USO hammered into the .618 level before closing lower during today’s 3pm selloff.

USO closed today in a doji formation which leaves the door open for a star or “island” reversal tomorrow. In any case, oil is extremely extended and regardless of the CME margin easing, oil really has no business above $100 in this economy.

In other news, the United States went over $15 trillion in total accounted debt today, a number that is up over 40% in just the last couple of years.

http://www.usdebtclock.org/

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S&P Chops Sideways Again, Dollar Wedge Setup

Gold And Silver Hit Hard One Day Prior To Options Expiration

As I suggested yesterday, the VIX made a run at resistance though was unable to close above 18.63, and as expected, QQQQ was also down substantially on a convincing amount of volume. It’s not certain that the VIX will break support as the week of options expiration is typically volatile, however, given the weakness in QQQQ, AAPL, and the rest of the equities market, it would not be surprising to see a slowdown here in equity prices.

Gold and silver were both beat up across the board just one day before options expiration which due to the high volume on some of the out of the money calls, I had at one point high hopes for. However that has not been the case but for most this has been regarded as a buying opportunity but there are still plenty of reasons as to why gold and silver can be better bargains in the near future.

Silver had its worst day in months and closed at $27.48, down 4.47%. After an extremely rough week, there is a bullish divergence building up on the 5 day stochastic which when given the recent selling pressure, should indicate that a bounce is in order. However, I don’t expect this bounce to be much more than the market taking a breather before continuing to trade lower – it seems to me that we are in a confirmed downtrend. Just today, silver’s closing price lined up to complete a lower trendline that began after the final 20 Day MA bounce during silver’s parabolic run. I think silver may trade between those trendlines pictured above until the next test of support.

Currently, we have a few areas where there appears to be support for the price to fall back to. The closest appears to be around the $27 range, the next closest is at $25, and the last is at roughly $23.25. My concern with these support levels is that given the extremity of the bullish run that began in August, the price did not stop to consolidate for more than a few trading sessions. This indicates that the support levels that are in place may be relatively vulnerable to the offensive attack from the bears. Months ago, I expressed this concern as we ascended to new highs, but the price continued to push on, so keep in mind that silver is being beaten up because of the beating it gave the short sellers for consecutive months.

The volume on SLV today climbed higher than 42,000,000 and the amount of selling volume that has followed price movement over the last two weeks has correctly forecasted the current mood of the market. I don’t expect this trend to change soon given that volume breakouts are a very reliable indicator, and I will remain bearish on the trade for the time being. I believe that the most prudent play from the long side would be to wait for confirmation that the selling pressure has subsided.

Make no mistake, silver is one of, if not the most undervalued asset on the market and I am extremely bullish on silver’s long term fundamentals. However, I am bearish towards the short term price activity because indicators are concisely suggesting that mometum is with the short side of the trade. I find this all very exciting and I am glad that the metals are not invincible to price consolidation because that means that this trade is not yet over-crowded and that there is still time to accumulate positions in bullion and producing miners.

Gold was also slammed hard, down for a loss of $23.90 (1.75%). In contrast with silver, it hasn’t done anything overly exciting compared to the other commodities such as agriculture and so on, yet it continues to simply chug along at a controlled pace which makes this correction seem a lot less violent.

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Gold has been so steady that even the recent breaking of the 50 Day MA seemed unnaturally quiet at least when compared to the silver market which had been stealing the spotlight. Two things jump out on this chart – the support level of $1325, and the possibility of a symmetrical wedge pattern that has broken down with the close of today's candlestick. The breaking of that wedge pattern means that $1325 should now be the support level that will be watching. I expect gold to test it, and in the meantime, the RSI and MACD should have time to finally come down to oversold levels for the first time in months.

I think $1325 holds.

As mentioned above, gold is correcting, but it is being woven down in a very controlled fashion. There isn’t a serious force of momentum behind this trade outside of the volume on the ETF’s. I think the selling pressure will weaken by the time the price makes its way closer to $1325. In addition, if gold continues to trade lower at the pace that it is now, the 200 Day MA may reach the $1325 level at the same time that price activity does which would provide added support.

My biggest reason for believing that gold will not make it much lower is the weekly 2 year chart. Those who follow my commentary know that I have used this chart in the past to find moving support levels.

In short, all consolidations bounce off of the 20 Day moving average, even counting the fact that in some cases, price activity broke down through the MA and stayed there for a week or two. In the cases where it did just that, the price quickly rebounded and almost every time followed through by making new highs. This trend has been intact since QE 1 and to say that gold will permenantly break this 2 year trend is in my opinion, saying that the fundamentals in the gold market are no longer reputable. Gold may pierce through $1325, and it may even have to readjust it’s support level a few points lower, but the long term trend remains rock solid, as do the fundamentals.

Pay no attention to the pundits on TV, and continue to buy the dips. Wait for confirmation of any breakout in this market as you would with anything else. Those who succeed in doing so will be rewarded much more fittingly than those who are buying into overvalued equities and bonds that have been propped up for decades by banks and governments.

Silver Short Term Consolidation Ending, Symmetrical Wedge

Silver closed down $.11 for the day at $29.20/oz however recent candlestick formations are indicating that price activity is almost done consolidating off of the top which was set last week at $30.67/oz.

The first thing that stands out is the symmetrical triangle (or wedge) pattern that has formed during this brief consolidation period. The pattern consists of at least two lower highs, followed by at least two higher lows to form a triangle that points sideways. This pattern is a bullish indicator and is a sign of an upcoming breakout.

The key technical instrument in the silver market is the 20 Day MA. Using the 20 Day MA in combination with the triangle, we can see where price activity is likely to meet up before breaking out again. It appears that we may have yet another down day, followed by a relatively flat day (or vice versa) to end the week. That should translate into a bounce off of the 20 Day MA to start off next week . At the same time, the upper channel on the triangle will be pierced and price activity should close above that trendline to complete the formation and confirm the breakout.

Same story on the ETF SLV – 20 MA provides temporary support, symmetrical triangle has formed in succession with spot silver. However, there are other things that stand out on this chart that you cannot see with the spot chart. For example, the volume that has been present for the last two trading sessions (both down days) has weakened. If the trend is a consolidating trend where price activity moves sideways, such is the case with silver, then weakening selling volume tells you that the price is nearly done consolidating. Also in support of bullishness for silver is the five consecutive hammer candles that have appeared over the last five sessions. Single day candle formations alone are not enough to base a trade on, but in this case, where five appear in a row and with the other variables that are listed above, it adds a considerable amount of weight to the case from the long side.

As soon as the price closes above that upper price channel of the wedge, I expect silver to make a run at $32/oz and perhaps reach it by the end of January. Regarding gold – I mentioned that I expect it to take longer to recover than silver and I am sticking to that however I want to remind everyone that the Chinese New Year begins on February 3rd, 2011. I believe that I predicted that gold will correct until the middle or end of January before making a run at $1500… perhaps that prediction will come true and the consumption from the Chinese New Year will be the catalyst for another round of buying pressure in the gold market. In any case, it’s an interesting thought so we’ll have to keep a close eye on things. Right now the most important thing to watch regarding gold is the 50 Day MA which the price continues to hover above. If that moving average breaks down, then my forecast may come true, if not, then it will have to close above $1430.60/oz to confirm the next breakout.