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

Silver Snaps January Trendline, Tests 50 MA, MCP Reverses

As we move later into the afternoon session, SLV is currently trading around the $38.40 mark and has found support a few hours ago at the 50 Day MA though it has broken the trendline going back to January. Yesterday, I said it wasn’t officially a “correction” until this happened so as of now I am a believer that the trend is no longer intact, as opposed to my stance regarding the past three days of selling which despite the volatility, only represented a pullback. Due to the nature of the hyperbolic run silver has had, you can see why I would be skeptical of any losing days as silver had previously shrugged off big days to the downside with high volume. After tapping the 50 MA, expect silver to bounce tomorrow and possibly trade flat to positive on friday, but don’t count on a real rally until there is confirmation of a reversal.

Volume on SLV today is likely to once again match or eclipse yesterday’s record volume.

Notice how gold has not confirmed silver’s move… that is because silver is decoupled from the market.

The dollar has had a lift but there is resistance on UUP at $20.96, right in the area of this morning’s gap. The dollar has been flat to positive this week as I suggested it may be, in addition the S&P has been negative and has followed the suggested path I pointed out on Monday. Expect the S&P to find support at $1340 – right where the 20 MA is currently resting. A bounce off of that level would set up the rising wedge for an intermediate top of $1400.

Yesterday looked like a possible breakout for MCP (would have fooled me) but today we have what looks like a bearish engulfing reversal on volume that will likely match yesterday’s by the ending of the trading session today. If MCP closes below the 20 MA by the end of the week, the downside could be $55-$65 in which I would most definitely label it as a strong buy once again. As of right now, I’d hold common shares but stay away from options and wait for confirmation of its next move before trading this.

VIX Up 8% As Markets Reverse

The SPX lost $2 and some change after opening higher, likely due to a minor rally after the news that Osama Bin Laden had been killed. Perhaps 5 or more years ago this would have provided the market with more relief but with terror not in the headlines, most Americans digested this news without a second thought. It is fascinating how the nationalism that this country had post 9/11 has all but disappeared.

Most of the selling action took place around 3pm when major indices and commodities tumbled sharply and limped into the closing bell. The UUP engulfed friday’s candle and a very short term rally may be ahead. Regarding last week’s post, I don’t think that the dollar is ready to make a long term reversal quite yet, and as I have stated before, I expect the S&P to reach 1400 and gold to reach $1600 before that happens.

There is the potential for a rising wedge in the S&P. If the markets come down this week, that would make sense for the dollar to rally off of the lows but if this is in fact a wedge, then the dollar rally will be short lived and will have to wait until the S&P tests stronger resistance before it can make a true bottom.

Silver went down after the CME margin hike this morning and once again with the rest of the market as everything sold off heavily during the last hour. It was down over 8% on the day, but maintain its uptrend. I think it is likely to get another pop after testing the 20 MA today, but I cannot speculate further down the road as the price has been far too unpredictable as of late. I still believe that I have the fundamentals correct in the sense that it must correct for while, but that doesn’t always mean that it will.

Molycorp Completes Breakout On Words From CEO Mark Smith

SAN FRANCISCO (MarketWatch) — Molycorp /quotes/comstock/13*!mcp/quotes/nls/mcp (MCP 53.00, +0.43, +0.82%) shares surged on Tuesday after the producer of rare earth minerals forecast a rosy outlook for the first quarter. Chief Executive Mark Smith said Monday at a mining conference that the company is on track to hit first-quarter sales targets on the back of higher prices, according to Reuters. Shares of Molycorp jumped 11% to $49.50 in recent trade.

http://www.marketwatch.com/story/molycorp-surges-11-on-rosy-outlook-2011-03-22

The article above was from about 1:30 today when MCP had rallied over 11%. The 4pm closing price was $52.27 for a daily gain of 17.66%. Notice the double bottom at $42.50 and the top trendline consolidation that played out after the $62 peak at the beginning of January. The volume and the size of the candlestick more than confirm the breakout. I opened a long position near the end of February and recommended it as a buy at $45. Congratulations to long term MCP shareholders.

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 Update For Jan 6th, 2011

There isn’t much for me to comment on today other than to keep an eye on the wedge pattern that may be forming on the daily chart for spot silver. We haven’t had 4 consecutive down days since I believe February and the stochastics, RSI, and MACD have not been this low since the end of August.

As for the length of this correction, it needs to play out more for me to be able to accurately predict how long it will last. As of right now, it could end at the end of the day tomorrow, or at the end of the month. Two important things to watch other than the wedge are the COT reports which will come out tomorrow, and the options activity. I still see over 45,000 $12.50 calls for Jan 11 on Hecla Mining (HL). I think that those calls would be covered by the fund that placed them if they believed that this correction would last as they only have 2 more weeks before expiration and Hecla closed around $9.90/share today – which in my opinion is ridiculously oversold.

Keep an eye on those juniors, this is a great chance to get a discount –

Silver:

First Majestic (AG) $13.32
Great Panther (GPRLF) $2.21
Hecla Mining (HL) $9.92
Revett Minerals (RVMID) $4.66
Silver Wheaton (SLW) $34.19
Endeavour (EXK) $6.47

Gold:

Anglo Ashanti (AU) $44.80
Aurizon (AZK) $6.74
Sandstorm Resources (SNDXF) $.79
Brigus Gold (BRD) $1.79