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Great Trades



Great stock trades based on fundamentals and technical analysis.



Updated: 2016-09-17T18:41:21.046-04:00

 



Gold, Silver Breakout, Retest Success

2010-06-21T02:00:16.049-04:00

Just a quick note to point out that gold and silver continue to break out, with gold at a new all-time closing high both on the daily and weekly charts. This is what a strong bull market looks like:

(image)

Silver has even been outperforming gold recently. Since our last update, silver is up over 3 times as much as gold, and still has quite a ways to go to get to even a new high on the year.

(image)

The Silver/Gold ratio had a bullish MACD crossover earlier this month, and has now broken above its 20-day EMA. Watch for silver to continue to outperform as long as this ratio remains above the 20-day EMA. Investors are beginning to realize that silver is money, too, and is a far cheaper alternative to gold.


For the stock market, since our last update on the SPX testing the 1105 area, it sold off to retest the February low at the 1040 area. After a successful retest of that support, for a nice double bottom, the SPX again tested its 20-day EMA and 200-day moving average this week after the VIX broke down badly from its uptrend. Unlike last time, this time the SPX broke above those moving averages, passing the test with resounding success.

(image)
With these successful tests, we now have the summer rally we were looking for earlier. As long as the SPX remains above its 20-day EMA and 200-day moving average, odds favor the long side in the stock market. For month end, the 12-month EMA remains in the 1090 area, and remains critical support for next week. With some more strength likely early this week after the news of the lifting of the China Yuan peg to the US dollar, the market would be short-term overbought and due for a pullback, but as long as any pullback is shallow, the summer rally should resume.

Watch the VIX downtrend in addition to these moving averages. When the VIX next has a strong break upward, it will likely mark the beginning of the next stock market selloff, which would be confirmed with breakdowns of the aforementioned SPX moving averages. There's a good possibility of such a selloff beginning by fall, after this summer rally ends.



Test Failure! Focus on Gold, Silver

2010-06-06T15:36:47.817-04:00

The next test will be the 200-day moving average at around 1105.On the other hand, another break of the 1090 support area probably means more selling is ahead before the market stabilizes.On Thursday, the SPX rallied right up to 1105, where the 200-day moving average is, but couldn't get through that key level. On Friday, in reaction to the poor Non-Farm Payrolls report and more bad news from Europe, the SPX dropped well below the 1090 support area, selling down all the way to 1065 for its lowest close since February:The SPX couldn't even make it up to its 20-day EMA before Friday's carnage.You can see from the chart that using above/below the 20-day EMA as a guide to favoring the long/short side has worked well.The QQQQ chart only could muster one day above its 20-day EMA, as Friday's selloff moved it back well below that moving average:This action, as well as the SPX drop below its 12-month EMA, favors the short side for the stock market as long as these EMA's remain above current prices:The SPX will likely bounce around with high volatility, but if it can't close this month above the 1082 area, that would likely indicate this weak period for stocks could last a while.Meanwhile, both gold and silver remain above their 12-month EMA's, as well as their 200-day moving averages:This stock market weakness has rewarded those who went long gold and short the stock market based on the monthly GLD/QQQQ buy signal we posted on May 2The VIX, bonds, and the the Put/Call ratio all look like they could drop quite a bit in a more stabilized stock market environment, as long as the news flow gets less negative.With the news flow getting even more negative on Friday, rather than less negative, the VIX and bonds moved right back above their uptrend lines that were broken earlier in the week:While we thought the stock market might enter a more stable period with a successful close over SPX 1105, Friday's poor news and horrible reaction killed that possibility for the near future. The 1105 test for the market was an abject failure.We continue to believe that investors and traders who favor the long side will be better off focusing on gold and silver during this period of stock market instability. With the global debt problems and currency devaluations, the fundamentals also favor these precious metals that have served as real money throughout history.[...]



Summer Rally?

2010-06-03T01:31:45.710-04:00

Today, the market action at the SPX 1090 resistance area was significant. Instead of selling off hard from there, as it did yesterday, this time the market rallied right through this resistance area, closing over 1098.The next test will be the 200-day moving average at around 1105. There's also an inverse head & shoulders pattern on the hourly SPX chart, which will get a confirmed breakout over 1105.If the SPX can get through 1105, the market could be in for a nice rally. The VIX, bonds, and the the Put/Call ratio all look like they could drop quite a bit in a more stabilized stock market environment, as long as the news flow gets less negative.Below is the QQQQ chart we posted last month in our warning to switch from stocks to gold. Now, with some follow-through rallying tomorrow, we could be exiting an unstable stock market period and entering a more stable period again.Notice that MACD got a bullish crossover in February at the beginning of the stable February-April period. Now, an up day tomorrow would confirm another bullish MACD crossover, and would also move QQQQ over its 20-day EMA. You can see from the chart that using above/below the 20-day EMA as a guide to favoring the long/short side has worked well.Here's a similar chart for the $VIX, which normally moves in the opposite direction of the stock market:The $VIX looks like it's broken its uptrend and had a bearish crossover on MACD. If the VIX continues to drop, the market should be much more stable.Here's one for TLT, the ETF for 20-year bonds:Bonds, which have rallied during this unstable period because of their "safe haven" status, also could be breaking their uptrend and also have had a bearish MACD crossover.And here's one for the Put/Call Ratio:The Put/Call Ratio is also coming down from an extreme level. Selling panics feature increased put buying, whereas market stability features more balanced put and call buying.There are lots of people calling for a market crash coming any day now, and they may be right, but these indicators are pointing to market stability instead if we get some follow-through strength in coming days, especially tomorrow, and especially over 1105 SPX. An up day tomorrow would also be the first time we'd see 2 consecutive up days since April, which would be another sign of renewed stability. On the other hand, another break of the 1090 support area probably means more selling is ahead before the market stabilizes.If we do see a summer rally, that would keep the SPX above its 12-month EMA (if it lasts until at east the end of June) and keep this cyclical bull market going for at least a little while. This chart shows that the 12-month EMA has done a pretty good job of identifying the trend over the last 10 years:It's still a dangerous market, but if we do see some follow-through strength tomorrow, it should become a lot less dangerous for a while. We believe any summer rally would be a selling/shorting opportunity, but if it happens, you won't want to short too soon.[...]



Portfolio Re-allocation Update: Sell Stocks, Buy Gold and Silver

2010-05-09T16:10:32.943-04:00

From our blog update last weekend:After the strong rally in stocks over the past year+, this looks like a particularly good time to reallocate portfolio assets from non-mining stocks into gold and silver. While stocks look like they could be in for more selling, gold is breaking out to new highs on the year, and is very close to breaking out to new all-time highs.Right now, this portfolio re-allocation strategy indicates a shift to long gold and short the Nasdaq 100 should be made.This breakdown from the rising wedge, along with the weekly bearish engulfing candlestick, VIX breakout over 20, and the excessive bullishness of newsletter writers, increases the likelihood that the market is in for more selling. A number of other indicators point to more selling to come, though there's a possibility of a short-term bounce first after Friday's sharp sell-off. Any market bounce or gold/silver pullback should be used to sell non-mining stocks.We got the short-term bounce on Monday, which was the perfect opportunity to sell out and reverse to short on the Nasdaq 100. Then, there was a small pullback in gold on Tuesday into Wednesday, which was a great opportunity to add more gold, and a larger pullback in silver and mining stocks into Wednesday, which was a great opportunity to add more of both (we pointed that out in our Wednesday morning blog update.After Monday, the Nasdaq, along with the rest of the stock market, was hit very hard, with its worst week since the March 2009 lows, highlighted by the intraday collapse during Thursday's historic selloff:Meanwhile, gold has broken out to a new all-time closing high on the weekly chart:The result has been a clear and powerful breakout on the GLD/QQQQ chart:The monthly chart of this ratio now shows a clear buy signal:Back in March 2009, near the beginning of this rally, we highlighted the importance of 9-to-1 up days in identifying bear market bottoms:This award-winning paper, Identifying Bear Market Bottoms and New Bull Markets, discusses the fact that major market bottoms are identified by a series of 90% downside days followed by 90% upside days. This is exactly what we've had in recent weeks, and it looks like today we had a 3rd 90% upside day of this rally.Now, coming off the recent peak, there has been a cluster of 9-to-1 down days:The last time we saw such a cluster of 9-to-1 down days coinciding with the breakout of the VIX from a base in the 20 area was in September 2008, which was the start of the precipitous decline that ended in the March 2009 bottom. That doesn't mean that the same type of decline will happen again here, but it's certainly a possibility for which investors should be prepared.There are some other indicators pointing to the likelihood of more selling to come.The weekly chart of the S&P 500 now shows a bearish cross on PPO:On the daily S&P 500 chart, the 13 and 34-day exponential moving averages have crossed back down (blue line crossing below red line):These bearish cross signals are negatives for the stock market, but, as happened at the February bottom this year and July bottom last year (we pointed out the bullish 13/34 cross in our July 20 update ), they can be overcome with a strong rally back.After this week's strong selloff, the market is at extremely oversold levels on a short-term basis.Over the last 10 years, the NYMO (NYSE McLellan Oscillator) has dipped below -100 only 7 times, and only once below the current level (October 2008):Each time the NYMO has reached these oversold readings, the S&P 500 has bounced for at least a day or two, starting immediately or within a couple of days. However, with the exception of November 2009, every one of these bounces has been met with selling to lower levels. Also, every one of these readings came with the NYSI at a lower level (NYMO is the rate of change of the NYSI), so there's now a lot more room for negative NYMO readings to come.After the break of 20 resistance the previous week coincided with the beginnin[...]



Update: Stocks Sell Off, Gold/Nasdaq 100 Ratio Buy Signal

2010-05-05T00:52:04.819-04:00

From Sunday's update:

This breakdown from the rising wedge, along with the weekly bearish engulfing candlestick, VIX breakout over 20, and the excessive bullishness of newsletter writers, increases the likelihood that the market is in for more selling. A number of other indicators point to more selling to come, though there's a possibility of a short-term bounce first after Friday's sharp sell-off. Any market bounce should be used to sell non-mining stocks.

Monday's short-term market bounce proved to be a great opportunity to sell stocks, and this pullback in silver and mining stocks, which were caught up in today's 225-point market selloff (likely hedge fund liquidations in thin markets), should prove to be a great buy opportunity for anyone doing this portfolio re-allocation.


As for the monthly Gold/Nasdaq 100 ratio chart, the stochastics lines have crossed back up:

Right now, this portfolio re-allocation strategy indicates a shift to long gold and short the Nasdaq 100 should be made. This ratio is just coming off the 36-month EMA, and the stochastics lines are oversold below 20, and look like they should cross back up soon.

Sunday's chart:

(image)

As you can see above (bottom pane), the black stochastics line was 11.84 while the red stochastics line was still above it at 13.50.

After today's action, the black stochastics line (16.62) has crossed back above the red stochastics line (13.93) to trigger a stochastics buy signal:

(image)
Keep in mind that this is a monthly chart, and May has just begun. It's the end of the month that counts on a monthly chart, so the stochastics lines will need to remain crossed back up at the end of May for this buy signal to be valid. Also, May is just one month -- this longer term chart could take several months to generate a stochastics buy signal if this cross doesn't hold.

It's a good start so far for this portfolio re-allocation strategy shift, but it won't be proven a success for a few more months.



Portfolio Re-allocation: Sell Stocks, Buy Gold and Silver

2010-05-02T22:30:08.918-04:00

From our last blog update, in March:If recent history repeats itself, we should soon see a short-term pullback, which should be followed by new highs in the S&P 500.The previous 10 times this EMA has peaked over 600 in the past year, the market has had a short-term pullback. Every one of those pullbacks has proven to be a buying opportunity, followed by new highs in the S&P 500. Unlike the previous 10 times the TICK 10-day EMA peaked over 600, this time the market pullbacks were very brief, primarily limited to intra-day sell-offs. After this EMA dipped back under 200, it bounced back up toward 600 as the S&P 500 (SPX) rallied to a new high, peaking at 1219.80 this past Monday.On the next day, Tuesday, something happened that we warned about in the last update:However, a break of 20 resistance in the VIX could again spur a sharper pullback in the market.Tuesday's break of 20 resistance in the VIX coincided with the largest market drop in months, as the SPX dropped from near 1220 on Monday to near 1180 on Tuesday. Since that VIX spike sent the VIX well above its upper Bollinger Band, and also sent other short-term indicators into very oversold territory (e.g., TRIN), the SPX bounced back to as high as 1209.36 on Wednesday and Thursday, dropping the VIX back under 19. On Friday, the VIX broke through 20 resistance again, as the market plunged again, with the SPX closing at 1186.69, closing out the week with a bearish engulfing candlestick sell signal on the weekly chart.Now, the VIX is again above its upper Bollinger Band, but only slightly, at 22.05 vs. 21.59. The upper Bollinger Band is rising sharply, so the VIX can likely continue higher and still stay near its upper Bollinger Band. The TICK 10-day EMA is back under 200, but it can go significantly negative before rebounding, as it did in February, October, and a number of times in the previous 12 months.The key level to watch for now is this past week's low, which was 1181.62 on the SPX. The Russell 2000 has already broken below its Tuesday low by over 3 points, and that small-cap index has been leading the market higher in recent months. If the other market indices follow, we should see a more significant market pullback. As this article points out, the three to one ratio of bullish to bearish newsletter writers is a red flag warning that could mean the market is in for a sizable correction.On the Nasdaq 100 (NDX or QQQQ), the rising wedge uptrend since the February low was finally broken on Friday:This breakdown from the rising wedge, along with the weekly bearish engulfing candlestick, VIX breakout over 20, and the excessive bullishness of newsletter writers, increases the likelihood that the market is in for more selling. A number of other indicators point to more selling to come, though there's a possibility of a short-term bounce first after Friday's sharp sell-off. Any market bounce should be used to sell non-mining stocks.While the stock market looks like it's in for some more selling, the gold and silver markets look very strong. We've advocated accumulating gold, silver, and quality mining stocks on pullbacks, and that strategy has worked quite well:Considering the longer-term trend higher in gold in its powerful bull market, this pullback should prove to be a great buying opportunity for longer term, for gold and silver as well as quality mining stocks.After the strong rally in stocks over the past year+, this looks like a particularly good time to reallocate portfolio assets from non-mining stocks into gold and silver. While stocks look like they could be in for more selling, gold is breaking out to new highs on the year, and is very close to breaking out to new all-time highs.Holding a portfolio allocation of long gold and short the Nasdaq 100 from early 2000 for 9 years would have made over 10 times your money, with similar results for silver:Shifting portfolio[...]



Pullback time?

2010-03-09T04:58:31.354-05:00

Our last blog update was in December, when the VIX first broke below 20 support, spurring a S&P 500 breakout to the 1150 area in January:If the VIX continues lower to establish a new range and the S&P 500 can break out above 1120 resistance, that would be bullish for the stock market in the short term, especially during this seasonally strong time of the year. However, the last time the VIX broke below 20 support, in August 2008, the short-term rally was followed by the precipitous market decline into the fall. Also, January has featured sharp declines in each of the last 2 years. Given the recent market action, it looks most likely that the S&P 500 will finally be able to break through 1120 resistance (perhaps after a very short-term pullback) and spurt higher in a short-term rally as the VIX establishes a new range. Depending on the market action, such a rally could prove to be a selling opportunity, judging from the last couple of years.As expected, the rally in January was a selling opportunity, followed by a sharp decline of over 100 S&P 500 points. The sharp decline into February proved to be a buying opportunity, featuring a VIX spike over 29, outside its upper Bollinger Band.Since the February low, the S&P 500 has rallied back strongly, pushing the VIX back down to the 17's, the same area as the January low, which corresponded with the high in the S&P 500 in the 1150's. Again, the market spurted higher once the VIX broke below 20 support.Now, for the first time since September, the TICK 10-day EMA is back above 600 again, and a number of other indicators are at short-term overbought extremes. The previous 10 times this EMA has peaked over 600 in the past year, the market has had a short-term pullback. Every one of those pullbacks has proven to be a buying opportunity, followed by new highs in the S&P 500.If recent history repeats itself, we should soon see a short-term pullback, which should be followed by new highs in the S&P 500. However, a break of 20 resistance in the VIX could again spur a sharper pullback in the market. If the pattern of higher highs in the S&P 500 is broken this time, the market could be in for more than just a short-term pullback.Considering the longer-term trend higher in gold in its powerful bull market, this pullback should prove to be a great buying opportunity for longer term, for gold and silver as well as quality mining stocks.Indeed, the precious metals pullback in December proved to be a great buying opportunity, as did the February pullback. We continue to view all pullbacks in precious metals and quality mining stocks as buying opportunities in a powerful bull market. As we've mentioned before, our blog updates will continue to be less frequent than previously, as we focus on expanding, updating, and testing our automated futures trading system across different markets, different timeframes, and various conditions.[...]



VIX Break Below 20 Support, Gold Pullback

2009-12-22T22:01:34.296-05:00

The VIX has dropped sharply from the lower 30's to the lower 20's, which has been a strong support area recently, so this sharp short-term rally phase may be nearing its end.

At the time of our last post, the S&P 500 had rallied over 60 points in less than 6 trading days. In the ensuing 6 weeks, the S&P 500 has traded in a narrow range from 1085-1120.

Until today, the VIX has remained in the lower 20's during that time:

(image)
Today, the VIX finally broke below 20 support, for the first time in over a year. The S&P 500 closed at the upper end of its recent trading range, at 1118.02.

If the VIX continues lower to establish a new range and the S&P 500 can break out above 1120 resistance, that would be bullish for the stock market in the short term, especially during this seasonally strong time of the year. However, the last time the VIX broke below 20 support, in August 2008, the short-term rally was followed by the precipitous market decline into the fall. Also, January has featured sharp declines in each of the last 2 years.

If the S&P 500 fails to break through 1120 resistance during this holiday season, that would be a negative for the market, especially if the VIX break below 20 turns out to be a head-fake, and the lower end of the recent range (at SPX 1085) is broken instead.

Given the recent market action, it looks most likely that the S&P 500 will finally be able to break through 1120 resistance (perhaps after a very short-term pullback) and spurt higher in a short-term rally as the VIX establishes a new range. Depending on the market action, such a rally could prove to be a selling opportunity, judging from the last couple of years.


Gold has had a very strong rally recently, so a short-term pullback can happen at any time, but the longer-term trend continues to be higher.

After a very strong rally to well over $1200, gold has pulled back over $150 in less than 3 weeks in a short-term pullback, as the U.S. Dollar has rallied back strongly following a strong decline since March. Considering the longer-term trend higher in gold in its powerful bull market, this pullback should prove to be a great buying opportunity for longer term, for gold and silver as well as quality mining stocks.


Fund update: Our plans to start a fund have been placed on hold, pending the proposed onerous trader transaction tax. Such a tax would put many funds out of business. Until the dust settles on this silly legislation, we'll continue live testing across markets under different conditions. Testing continues to go very well.



Rally as Expected, Another Gold All-Time High

2009-11-10T01:09:44.751-05:00

Given the recent history of the market rallying sharply short term after a VIX spike above its upper Bollinger Band and a spike down in the NYMO, combined with the upward market bias heading into the FOMC announcement, there's a good chance the market will move up into that announcement tomorrow afternoon. If recent history is a good indication, the market also should continue higher over the next few days.As expected, the market rallied into the FOMC announcement, and then continued higher the next 3 days. In the 4 trading days since our last post, the Dow has rallied over 450 points, making a new 52-week high. The S&P 500 hasn't yet made a new 52-week high, but is within 8 points of one and broke the September high.This updated chart of the VIX and SPX shows the sharp short-term rally we were expecting after the VIX spike above its Bollinger Band:The VIX has dropped sharply from the lower 30's to the lower 20's, which has been a strong support area recently, so this sharp short-term rally may be nearing its end.The updated chart of the TICK 10-day EMA shows that it's once again approaching the 600 level:As we said after the last peak over 600, "Since the first peak over 600 on the TICK 10-day EMA, back in March, there have been 9 straight higher highs marked by subsequent peaks over 600 on this EMA." If we get a 10th higher high with another peak over 600, we'll then look for another short-term pullback, and see if that pullback will be yet another buying opportunity, or a trend change with a lower low.Friday's small NYMO change had us expecting a big move early this week, and today was a very big move, both in terms of points and breadth, marking a strong 90% upside day (we first discussed 90% upside and downside days here). This chart shows that today was actually an 18-to-1 day in terms of NYSE Volume:While the breadth of today's rally is impressive, there were also impressive 9-to-1 downside days in late October on higher volume. Those selloffs proved to be buying opportunities, so it's possible that this rally could prove to be a selling opportunity. However, if there are more 9-to-1 upside days in the near future, the market could be headed significantly higher.Watch for a bearish cross on the weekly PPO and a break of the weekly uptrend to signal a more significant market correction. If the TICK 10-day EMA can't reach the 600 level on the next bounce, or the market fails to sustain a rally from oversold NYMO levels, the medium-term trend could be changing.This updated weekly S&P 500 chart shows we haven't yet had a bearish cross on the weekly PPO, and though the uptrend line from the March low was broken in late October, the early October low held, keeping the weekly uptrend intact:We should see soon whether the TICK 10-day EMA reaches the 600 level and whether this rally from oversold NYMO levels lasts. While it won't take much of a drop in coming weeks to trigger a bearish cross on weekly PPO, we won't be comfortable looking for a significant market correction until we get such a cross, along with some other indicator confirmations. A failure to make a new high in the S&P 500 would be the first indication of a more significant market correction, with a break of the October low a confirmation.This expected short-term rally has brought some mixed signals. The new Dow high and strong breadth are positives, but the lower volume and negative divergences are negatives. In the very short term, the high closing TICK and very low closing TRIN indicate likely weakness early tomorrow. The market action in coming days should help point to the next significant move direction.As expected, gold and silver have continued higher, with gold closing over $1100 an ounce for the first time ever today. Gold has had a very strong rally recently, so a short-term pullback can happen at any time, but the long[...]



Another Gold Breakout, Short-term Market Rally?

2009-11-04T00:02:56.283-05:00

Gold bulls will want to see a successful backtest followed by a breakout to new highsIt took less than a week for gold to rebound and break out to another new high, with a strong $25+ rally today despite the U.S. Dollar moving higher on the day. Silver also rallied strongly, up over 4% today alone. The precious metals had been moving inversely to the dollar, so today's strong move higher in the face of a stronger dollar could bode very well for continued strength even if the dollar rebounds.As we said last month, "The precious metals could be in for an extended rally period on this breakout. If so, the miners should be in for a strong bull move."As this chart shows, the TICK 10-day EMA is below 0 for the first time since the June/July dip (though it has room to move lower)And move lower it did, dipping down below the oversold line late last week:On that move lower, the NYSE McClellan Oscillator (NYMO) moved lower than at any other point during this rally:Previous spikes down in the NYMO during this rally have been followed by short-term rallies.Also, the VIX spiked well over its upper Bollinger Band. It was the 5th time since this rally began in March that the VIX spiked to or above its upper Bollinger Band. The previous 4 times, the S&P 500 rallied back sharply short term after the VIX spike:Given the recent history of the market rallying sharply short term after a VIX spike above its upper Bollinger Band and a spike down in the NYMO, combined with the upward market bias heading into the FOMC announcement, there's a good chance the market will move up into that announcement tomorrow afternoon. If recent history is a good indication, the market also should continue higher over the next few days.Despite the recent market pullback, the S&P 500 has held its October lows, meaning a rally from here would mark another higher low. However, if the market fails to make a new high on this next rally, and then makes a lower low, the medium-term trend will have changed from upward to downward. A short-term rally followed by a lower low would likely also put in place a head and shoulders topping pattern, which might finally lead to a more significant market correction.As we said last time, "Watch for a bearish cross on the weekly PPO and a break of the weekly uptrend to signal a more significant market correction. If the TICK 10-day EMA can't reach the 600 level on the next bounce, or the market fails to sustain a rally from oversold NYMO levels, the medium-term trend could be changing."A number of indicators and negative divergences are pointing to a possible change in the medium-term trend to the downside. However, a new high would extend the rally and keep the trend moving to the upside. Aggressive traders may want to reduce long exposure and increase short exposure on the next rally, with a stop on the short exposure at a new high. More conservative traders and investors may want to wait for confirmation of a trend change with a lower high and lower low combined with other indicator confirmations.[...]



Another market dip, or trend change?

2009-10-28T01:38:58.012-04:00

The dip in the S&P 500 we mentioned last time did indeed prove to be a buying opportunity. However, unlike the previous 9 times the market rallied back from a short-term pullback after the TICK 10-day EMA peaked over 600, this time that 10-day EMA has not reached the 600 level on the rally back to a new high. That could mean this dip will take longer, like the June/July dip, or it could mean the trend will change. As this chart shows, the TICK 10-day EMA is below 0 for the first time since the June/July dip (though it has room to move lower):

(image)
Each time the NYSE McClellan Oscillator (NYMO) has dropped to this area during this rally, the market has rallied back to make a new high. If this rally is to continue without a more significant correction, it should do the same once again:

(image)
As this weekly chart shows, the S&P 500 has been trending higher since March with a bearish divergence on PPO, just as it had been trending lower into March with a bullish divergence:

(image)
Watch for a bearish cross on the weekly PPO and a break of the weekly uptrend to signal a more significant market correction. If the TICK 10-day EMA can't reach the 600 level on the next bounce, or the market fails to sustain a rally from oversold NYMO levels, the medium-term trend could be changing.


Gold has continued its breakout action, moving as high as $1070 before backtesting the previous all-time high level in the 1030-1040 area. Gold bulls will want to see a successful backtest followed by a breakout to new highs:

(image)

We continue to test our futures trading system across different markets. We await a significant downward correction in the stock market to see how our various programs perform under those conditions.



Breakout to New All-Time High

2009-10-07T03:04:06.430-04:00

Today's reversal off the morning dip and close above $1000 is very bullish action, and could portend a push to take out the all-time high.

That didn't take long. In less than 2 trading days, gold has proceeded to break out to a new all-time high over $1040, as the action on Friday indicated. Silver was up over 4% today.

The precious metals could be in for an extended rally period on this breakout. If so, the miners should be in for a strong bull move.



Gold Bullish Consolidation

2009-10-02T19:09:18.686-04:00

In other commodities, gold has been consolidating around the 1000 level recently, threatening to take out the all-time high of 1,033 from early last year. If it holds the 1000 area and pushes through to new highs, the bull trend will continue, with a target in the 1300 area from the inverse head and shoulders pattern formed since early last year. A breakout in gold should also send silver much higher, with silver needing to more than triple to reach its all-time high. Adjusted for inflation, the all-time highs for both metals is much, much higher.


Since we posted that a week ago, gold has dipped below 990 4 times intraday, including today, only to close above that mark each time. Today's reversal off the morning dip and close above $1000 is very bullish action, and could portend a push to take out the all-time high.

Since Monday's close, the Dow has lost over 300 points, but gold has actually moved higher by over $10, even as the U.S. dollar has moved higher.

As long as the 1000 area holds, the gold action continues to look like a bullish consolidation. Traders can go long in the 1000 area with a well-defined risk using a stop below recent support (mid-980's intraday and 990 closing basis have been the recent support areas in December futures), giving a good risk/reward trading opportunity.



Another dip to buy or is the 10th time different?

2009-09-25T04:51:44.065-04:00

With this rally, the TICK 10-day EMA is back above 600 again. It has room to go higher, but once it peaks, we should see at least a short-term pullback like the last 7 times it peaked over 600 since March. Previous peaks over 600 have led to more significant down moves (e.g., late August '08 and early January '09).If the next pullback holds the 970 area, it would be bullish for a continued rally to higher levels. If we get a short pullback like the last 7 times it peaked over 600, the second day could again be a great buying opportunity.Since our last post early last month, the TICK 10-day EMA dipped back down near 200 in mid-August on a short-term pullback that held the 970 level, which did prove to be "bullish for a continued rally to higher levels." There were a number of consolidation days before the 2-day dip to the 970's, and the second day again proved to be a great buying opportunity.On August 21, the TICK 10-day EMA peaked over 600 yet again, followed by several consolidation days, a short-term pullback to the 990's along with the TICK 10-day EMA dipping back down near 200, and yet another buying opportunity after 2 days of selling.Last week, the TICK 10-day EMA peaked over 600 for the 10th time since March (each time marked with a blue vertical line in the chart above). After several consolidation days, we've now had yet another short-term pullback, with the TICK 10-day EMA dipping down near 100 on this drop to the 1045 area.If the pattern from the last 9 times the market had a short-term pullback after the TICK 10-day EMA peaked over 600 continues, the selling the last 2 days should prove to be yet another buying opportunity. If that pattern breaks, and the market continues lower after this short-term pullback, we may finally see a deeper correction.Since the first peak over 600 on the TICK 10-day EMA, back in March, there have been 9 straight higher highs marked by subsequent peaks over 600 on this EMA. Will there be more to come? The market action in coming days should be telling... In other commodities, gold has been consolidating around the 1000 level recently, threatening to take out the all-time high of 1,033 from early last year. If it holds the 1000 area and pushes through to new highs, the bull trend will continue, with a target in the 1300 area from the inverse head and shoulders pattern formed since early last year. A breakout in gold should also send silver much higher, with silver needing to more than triple to reach its all-time high. Adjusted for inflation, the all-time highs for both metals is much, much higher.Some of our long-term mining holdings have come back to life recently with the recovery in metal prices, along with improving project developments. If/when gold and silver break out, they could move much higher quickly as the sector attracts increased investor attention and shorts scramble to cover their positions.[...]



Rally Continues

2009-08-03T20:13:52.209-04:00

This updated chart of the TICK 10-day EMA shows that, with today's breakout rally, it has moved well above 700, much higher than any reading in the last couple of years. If we get a short pullback like the last 6 times it peaked over 600, the second day could again be a great buying opportunity.

If the next pullback holds the 950 area, or even the 927-930 area, it would be bullish for a continued rally to higher levels. Given today's Dow Transports confirmation of the Dow Theory Bull Signal, we'll see next week if indeed such a pullback proves to be a great buying opportunity.



Here's the updated TICK 10-day EMA chart, along with the S&P 500 underneath:

(image)
As expected, we got a short pullback last week, and the second pullback day was again a great buying opportunity. The pullback not only held the 950 area, but actually held the 970 area, as dip buyers were out in force. As Friday's small NYMO change indicated, we got a big move day today, closing above the 1000 level.

With this rally, the TICK 10-day EMA is back above 600 again. It has room to go higher, but once it peaks, we should see at least a short-term pullback like the last 7 times it peaked over 600 since March. Previous peaks over 600 have led to more significant down moves (e.g., late August '08 and early January '09).

If the next pullback holds the 970 area, it would be bullish for a continued rally to higher levels. If we get a short pullback like the last 7 times it peaked over 600, the second day could again be a great buying opportunity. If that pattern breaks, and the market continues lower after 2 days on the next pullback, it should signal a deeper correction.



Trend Day with Signs of Weakening

2009-07-24T01:15:09.365-04:00

With all the bullish technicals, we're not likely to see as big a down day any time soon, but this indicator does point to a likely pullback very soon. If we get a short pullback like the last 6 times during this rally, the second day of the pullback could be a great buying opportunity yet again.The healthiest thing for the market would be a short consolidation/pullback over the next couple of days that holds the 927-930 "Confluence" area. The next level of resistance is the June intraday high of 956. Above there, there's not much nearby resistance, so the market can move swiftly higher, especially after a bullish consolidation.After two days of bullish consolidation, where the intraday dips of close to 1% were bought up but the SPX continued to close under 956 resistance, and where the small NYMO change yesterday indicated a big move day was coming, the SPX "moved swiftly higher" today on a clear breakout through the 956 area to close 20 points higher over 976. From the early breakout, indicators again pointed to a trend day up:On a trend day, you'll see few or no significant TICK readings in the opposite direction (more than 800 negative, or positive on a down day, on the $TICK chart), greater than 9-to-1 up volume vs. down volume (above the blue line on the top green $NYUPV:NYDNV chart, or the second red chart on down days), and a $TRIN reading below 1 and trending lower. On these days, the market will move higher or lower in a trend without significant moves in the opposite direction, and will usually close at or near the highs (or lows) for the day.You could make significant market profits trading trend days only, if you go with the flow. Remember -- the trend is your friend (until it ends).As this chart shows, for most of the day, it was a clear trend day up, using the same signals mentioned last week:There were no significant negative TICK readings through most of the day, up volume vs. down volume reached over 9-to-1, and $TRIN stayed well below 1. The breakout through 956 resistance was very strong, with lots of short covering helping to power the rally.However, around 2:00 pm, some of the indicators started weakening -- There were more negative TICK readings (though no big ones), up volume vs. down volume was about cut in half from the high to close at 5.16, and near the end of the day, $TRIN rose above 1, indicating that more volume was flowing to the losers. Compare this chart to last week's, where up volume vs. down volume closed at its high and $TRIN closed at its low. After a nearly straight up rally over the last couple of weeks, including a couple of days of minimal consolidation, these signs of distribution pointed to a likely impending pullback. MicroSoft, Amazon, and American Express all disappointing on earnings have moved the futures lower after hours, indicating the pullback these signals pointed to has already started.This updated chart of the TICK 10-day EMA shows that, with today's breakout rally, it has moved well above 700, much higher than any reading in the last couple of years. If we get a short pullback like the last 6 times it peaked over 600, the second day could again be a great buying opportunity:If the next pullback holds the 950 area, or even the 927-930 area, it would be bullish for a continued rally to higher levels. Given today's Dow Transports confirmation of the Dow Theory Bull Signal added to the bullish signals we mentioned last time, we'll see next week if indeed such a pullback proves to be a great buying opportunity. [...]



Rally Continues -- Short Pullback/Consolidation Time?

2009-07-21T03:41:02.228-04:00

...if the market can hold the 927-930 "Confluence" area on a closing basis during this consolidation, that would be extremely bullish, and then shorts should be prepared for some more squeezing. If the SPX rallies a bit more in coming weeks, the 13-day EMA should cross back above the 34-day EMA for a buy signal, and if it breaks out above June's high, it will invalidate the Head & Shoulders pattern.

On Friday's brief consolidation/pullback, the S&P 500 held well above the 927-930 "Confluence" area, and then shorts got squeezed more today as the SPX closed above June's closing high. As this chart shows, the 13-day EMA crossed back above the 34-day EMA for a buy signal (red line crossing back above blue line, with the black line above the horizontal line showing the 13/34 EMA difference is positive), and the Head & Shoulders pattern that sucked in more shorts is no longer valid:

(image)
So two of the signals that were in the bears' favor are no longer sell signals, and one has turned into a buy signal, joining the "Golden Cross" of the 50 day moving average crossing above the 200-day moving average.

The S&P 500 has rallied nearly straight up over the last 6 trading days, gaining about 9%. After such a sharp move, it could use a healthy consolidation/pullback to set the stage for the next move higher.


We posted this chart of the 10-day EMA of the TICK back on Saturday, April 18 , using it as one indicator pointing to a big down day on Monday, April 20 (when the Dow closed down nearly 300 points):

If Monday starts a pullback like the last 5 times this TICK 10-day EMA peaked over 600, the market should sell hard into Tuesday at least.

Each of the 5 previous times, marked with a vertical blue line, the market sold off the next couple of days, twice bouncing back up off the second day low.



(image)
With all the bullish technicals, we're not likely to see as big a down day any time soon, but this indicator does point to a likely pullback very soon. If we get a short pullback like the last 6 times during this rally, the second day of the pullback could be a great buying opportunity yet again.


The healthiest thing for the market would be a short consolidation/pullback over the next couple of days that holds the 927-930 "Confluence" area. The next level of resistance is the June intraday high of 956. Above there, there's not much nearby resistance, so the market can move swiftly higher, especially after a bullish consolidation.



Big Squeeze Trend Day

2009-07-16T01:57:49.714-04:00

Despite the breakdown, the May 15 low at 879 has continued to hold on a closing basis. That's 4 straight days now the SPX has closed between 879 and 882. If the powers that be can continue to defend this level, those who have shorted based on the now widely reported Head & Shoulders pattern may get squeezed.Voilà...The VIX got within 0.07 points of the rally's closing low from 2 weeks ago. If it can make a higher low here and then break last week's high to reverse the downtrend, that would be a bad indication for the market. However, if it breaks down below the rally low, there could be more short squeezing ahead.And more short squeezing we got today after the VIX made a new closing low yesterday. Today, it broke the intraday low from the rally and made a new low for the year, as the market had its biggest up day in a while.Amazingly, despite the major market indices closing up around 3% or more, the VIX actually also closed higher by 3.5%, bouncing off its lower Bollinger Band intraday. When both the market and the VIX move up significantly on the same day, the market tends to pull back in the short term.As shown in this chart, today was the first 9-1 up day in nearly 2 months, while we've had 3 different 9-1 down days in the last month: If the selloff is over and we're headed much higher, we should see more 9-1 up days and fewer 9-1 down days in coming weeks.Here's the updated chart including today:So we did get another 9-1 up day only 2 days later, and this one was actually a 28-to-1 up day. This is a positive sign for those who think the correction's over and the market's going much higher.Looking ahead, there's some SPX resistance nearby, but the big "Confluence of resistance" remains in the 927-930 area. If the market can break through that area, there could be a further squeeze rally from there -- there may be lots of new shorts based on the media reports on the Head & Shoulders pattern. If the pullback after this bounce holds the 879 area on a closing basis, that could confirm a bottom to this selloff, but if that area gives way, we should see some significant selling to potentially much lower levels. The nature of the follow-through to today's rally will help determine the next big market move. The SPX basically blew through all resistance to get to the 927-930 "Confluence of resistance" area today. It paused at 927 at mid-day, but then powered through the resistance to close at 932.68, at least partially powered by short covering.Today's reversal on the VIX from a new intraday low on the year at its lower Bollinger Band to up 3.5% may portend some short-term weakness/consolidation, but if the market can hold the 927-930 "Confluence" area on a closing basis during this consolidation, that would be extremely bullish, and then shorts should be prepared for some more squeezing. If the SPX rallies a bit more in coming weeks, the 13-day EMA should cross back above the 34-day EMA for a buy signal, and if it breaks out above June's high, it will invalidate the Head & Shoulders pattern.On trend days like today, perhaps the best daytrading tactic is to buy the dips (or sell the spikes on a down-sloping trend day). One of the first programs in our new automated futures trading system was designed to do exactly that, and it has been amazingly consistent, with over 90% wins. Here's the equity curve for this program on the e-mini S&P 500 futures since March 12, when the June contract started trading in volume:Note that the first couple of months were backtest results on historical data only, but the results since then have been just as consistent or be[...]



Strong Action on Breakout from Resistance

2009-07-14T04:26:54.247-04:00

Despite the breakdown, the May 15 low at 879 has continued to hold on a closing basis. That's 4 straight days now the SPX has closed between 879 and 882. If the powers that be can continue to defend this level, those who have shorted based on the now widely reported Head & Shoulders pattern may get squeezed. If it breaks down, though, we may see some significant selling.Shorter term, there are some oversold readings and positive divergences that would normally indicate a bounce is likely. However, we've had several bounce attempts the last few days that have been very weak, and have worked off some of the oversold conditions (e.g., the VIX coming back down off its upper Bollinger Band). Whichever way the market breaks, the action could be strong after the narrow trading range late this week that has hugged the 200 day moving average (gold line).Watch for a breakdown of this week's 869 low or a breakout above the 888 resistance level (former support at June lows, and also yesterday's high) for an indication of which way the next move will go. A close below 879 would also be a negative indication. Also, watch to see if the VIX can make a higher low and then a higher high to reverse the downtrend it's been in -- such a trend reversal would not bode well for the market. On the up side, a close over 888 would be positive, and a break of last week's low on the VIX would also be positive.As expected, the action today was strong after last week's narrow trading range. Last night, S&P futures came within 0.25 points of last week's low (corresponds with 869 SPX), but buyers came in and defended that level. Later, in regular trading, buyers rushed in when 888 resistance was taken out, pushing the SPX over 901 at the close, with futures over 30 points higher than last night. The VIX got within 0.07 points of the rally's closing low from 2 weeks ago. If it can make a higher low here and then break last week's high to reverse the downtrend, that would be a bad indication for the market. However, if it breaks down below the rally low, there could be more short squeezing ahead.As shown in this chart, today was the first 9-1 up day in nearly 2 months, while we've had 3 different 9-1 down days in the last month:If the selloff is over and the market's headed much higher, we should see more 9-1 up days and fewer 9-1 down days in coming weeks. Looking ahead, there's some SPX resistance nearby, but the big "Confluence of resistance" remains in the 927-930 area. If the market can break through that area, there could be a sizable squeeze rally from there -- there may be lots of new shorts based on the media reports on the Head & Shoulders pattern. If the pullback after this bounce holds the 879 area on a closing basis, that could confirm a bottom to this selloff, but if that area gives way, we should see some significant selling to potentially much lower levels. The nature of the follow-through to today's rally will help determine the next big market move.Our futures trading system had another great day, getting very long stock index futures for the breakout rally, and also getting nice profits on the gold rally. It continues to do well in both up and down markets, and live testing has allowed us to tweak the various programs as needed.[...]



Consolidation at 879 Support

2009-07-10T18:35:55.468-04:00

The next thing to watch for is either a decisive break of the June lows (the S&P 500 briefly dipped below 888 this morning -- the May 15 879 level is also support) or a breakout from the 927-930 resistance area. Given the VIX signals from last week and some other technical indications of a market shift, there's a good chance the next break will be down after this bounce is over.

However, strength early next week may provide a good selling opportunity, as "there are indications that a market shift is taking place..." A break of the June lows will confirm the Head & Shoulders topping pattern and likely mean more weakness is coming.


(image)
As expected, the market rebound from last week's selloff ended by early Tuesday, providing a good selling opportunity, and the market broke down quickly from there. The June lows at 888 broke down this week, confirming the Head & Shoulders topping pattern, which many in the media have now picked up on, and featuring the "bearish 13/34 EMA cross (red and blue lines)" that we mentioned last week. These two indicators have been fairly reliable sell signals for the intermediate term. However, we still have the bullish golden cross (purple line crossing above the gold line), which is a fairly reliable buy signal a little longer term.

Despite the breakdown, the May 15 low at 879 has continued to hold on a closing basis. That's 4 straight days now the SPX has closed between 879 and 882. If the powers that be can continue to defend this level, those who have shorted based on the now widely reported Head & Shoulders pattern may get squeezed. If it breaks down, though, we may see some significant selling.

Shorter term, there are some oversold readings and positive divergences that would normally indicate a bounce is likely. However, we've had several bounce attempts the last few days that have been very weak, and have worked off some of the oversold conditions (e.g., the VIX coming back down off its upper Bollinger Band). Whichever way the market breaks, the action could be strong after the narrow trading range late this week that has hugged the 200 day moving average (gold line).

Watch for a breakdown of this week's 869 low or a breakout above the 888 resistance level (former support at June lows, and also yesterday's high) for an indication of which way the next move will go. A close below 879 would also be a negative indication. Also, watch to see if the VIX can make a higher low and then a higher high to reverse the downtrend it's been in -- such a trend reversal would not bode well for the market. On the up side, a close over 888 would be positive, and a break of last week's low on the VIX would also be positive.



Market Rebound

2009-07-06T17:13:37.046-04:00

As we said over the weekend, "With the very high TRIN reading of over 3.5 at the close on Thursday, the market is likely to rebound some on Monday, at least for part of the day."

As expected, the S&P 500 bounced off the lower Bollinger Band and overcame strongly negative futures to rebound and close at its high, finishing in the green and up over 12 points from the morning low.

Our automated Gap Up Trader went long again at today's close, looking to exit higher in the first hour tomorrow, or up to one hour before the open, so there's a good chance the rebound continues into tomorrow.


However, strength early next week may provide a good selling opportunity, as "there are indications that a market shift is taking place..." A break of the June lows will confirm the Head & Shoulders topping pattern and likely mean more weakness is coming.

The next thing to watch for is either a decisive break of the June lows (the S&P 500 briefly dipped below 888 this morning -- the May 15 879 level is also support) or a breakout from the 927-930 resistance area. Given the VIX signals from last week and some other technical indications of a market shift, there's a good chance the next break will be down after this bounce is over.



Confluence of Resistance and VIX Bounce Turn the Market Back

2009-07-04T15:43:17.526-04:00

As we said last week, "Now, the market is near a key resistance area, and how it reacts to that resistance will likely determine the direction of the next big move."The market's rejection at that "Confluence of Resistance" 927 area indicated that the next big move would be down, especially given the failure during this historically positive week, along with the rare VIX action.On Monday morning, the S&P 500 quickly rose to the 927 resistance area, but was unable to break through it, closing right at 927, for the highest close of the week. The "double violation of the lower Bollinger Band" I mentioned last week turned into a triple violation with Monday's third consecutive VIX close below its lower Bollinger band. As we mentioned last week, even a single close of the VIX below the lower Bollinger Band has been a pretty reliable sell signal.Tuesday had a sharp drop when the 927 area didn't hold, falling 15 points to the 912 area, providing nice, quick profits to those who shorted Monday's strength as we suggested. The VIX bounced back nearly 10% from its intraday low, but fell back into the end of the day as the market rebounded.Our automated gap trader indicated the market was likely to bounce back on Wednesday, at least early on. Despite quarter end and pre-holiday favorable timing, the failure of the market to break out through the "Confluence of Resistance" area on Wednesday (the May high around 930 also added to this resistance zone), along with some other technical sell signals, was a strong hint that the market was headed for a big down day on Thursday.The VIX broke to an even lower low on Wednesday, again piercing the lower Bollinger Band (for the 5th straight day) before bouncing back as the market rally faded. The VIX action clearly indicated a VIX bounce was due, which would mean market weakness.With the failure at resistance, we very nearly posted another warning of a big down day to come on Thursday, but the unknown reaction to the employment report on the normally bullish day before the holiday gave us pause, and we already had made it clear the reaction to the resistance area would determine the next direction. We were also busy preparing our systems for Thursday's selloff -- It's easier to do blog posts on the weekends when the futures markets are closed.The disappointing employment report sealed the market's fate for Thursday, as it had its worst day before the July 4th holiday ever. The VIX bounced back over 15% from Thursday's low to Friday's high. Our automated trading system had its biggest one-day gain ever (on an absolute dollar basis, but not % basis, as there were bigger % gainers when the account was smaller -- e.g., on June 22 when the big down day came as expected and the system also had big gains from other commodities).As we said last week, "This confluence of resistance means it's important for the market to power through through that 927 area next week in order to have the month-end/quarter-end/holiday rally one would expect. If it fails to break though that area and rolls over instead, a break of this week's low would confirm a head and shoulders topping pattern and would also feature a bearish 13/34 EMA cross (red and blue lines)." The market rolled over, but it did not yet break last week's low to confirm the head and shoulders breakdown, and the 13/34 EMA lines haven't crossed yet.With the very high TRIN reading of over 3.5 at the close on Thursday, the market is likely to rebound some on Monday, at least for part of the[...]



Confluence of Resistance -- VIX Bounce Coming?

2009-06-26T20:07:22.888-04:00

After Tuesday's small NYMO change day signaled a big move day coming, the big move came on Thursday, as the S&P 500 moved sharply off its lower Bollinger Band and powered up toward last week's high. Now, the market is near a key resistance area, and how it reacts to that resistance will likely determine the direction of the next big move.

If the S&P 500 can break through the resistance in the area of last week's 927 high, it should make a push toward the 956 high of the week prior. Earlier in this rally, such an up move would have been a given considering next week is month end, quarter end, and a holiday-shortened week. However, there are indications that a market shift is taking place...

Here's a blog post indicating that the VIX closing below the lower Bollinger Band has been a pretty reliable sell signal, and sometimes significant market turning point: http://www.trivisonno.com/vix-up-to-trix

Not only did the VIX close below the lower Bollinger Band yesterday, but it did so today as well, with the VIX closing down 1.6% even though the S&P 500 closed down (as you can see from the chart, they normally are inversely correlated). This chart of the VIX and SPX shows this double violation of the lower Bollinger Band, as well as the S&P 500's bounce off the lower Bollinger Band earlier this week:

(image)
You can also see in this chart that the 20-day moving average (gold line) sits right at the 927 area, and the PAR SAR Stop and Reverse indicator (little pink boxes above the SPX) will also be in that area early next week. This confluence of resistance means it's important for the market to power through through that 927 area next week in order to have the month-end/quarter-end/holiday rally one would expect. If it fails to break though that area and rolls over instead, a break of this week's low would confirm a head and shoulders topping pattern and would also feature a bearish 13/34 EMA cross (red and blue lines).

Given the current setup, a low-risk, potentially high-reward strategy might be to short any strength in the S&P 500 early next week, and stop and reverse to long on a breakout of the 927 resistance area. That would allow one to profit from whichever way the market breaks.

The double VIX lower Bollinger Band penetration argues for a market break lower, while the "Golden Cross" bullish 50/200 day moving average crossover this week and the quarter-end/holiday week next week argue for a break higher. The key is to be ready for both and profit either way.



Biggest Down Day since April 20

2009-06-22T21:17:45.945-04:00

The big move down today came as expected, with the Dow losing over 200 points, the Nasdaq losing over 60 and the S&P 500 losing over 28. It was the biggest one-day loss in the stock market since April 20, which happens to be the last time we called for a big down day on this blog.

Our automated trading system had another great day, as it was well prepared for the big down day, and also profited nicely from the bond and dollar rallies as well as the gold pullback.

We will continue to focus on expanding and testing our automated futures trading system, but will also continue to post on this blog periodically.



Down Monday?

2009-06-20T18:45:02.053-04:00

While the S&P 500 had a nice rally of about 20 points from Thursday morning's low to Friday morning's high, it was not really the big move in one day that has usually occurred recently after a small NYMO change day. With the somewhat muted reaction to this indicator so far, we're looking for a potential big move day on Monday, the first trading day after quadruple witching expiration.

Whereas on Wednesday we were looking for a move up, which we got, we're now leaning toward the next big move being down. The lackluster rally in response to the NYMO indicator could portend a down move, though it's hard to tell if quadruple witching expiration had an effect.

If Friday's lows get broken on Monday, we'll be looking for a more sizable down day. However, if the market breaks out above Friday's highs, we'll be looking for continued up side. In any case, we'll be ready for a break in either direction, as our system will react to wherever the market goes. There should be some nice volatility on Monday from which active traders can profit.

Live testing of our automated system continues to go very well, with strong returns and minimal draw down. With the arrival of our new hardware, we continue to expand the system's coverage. The bond and U.S. dollar futures trading so far has provided very nice gains to supplement the stock index futures trading, and we're now adding gold futures trading. We'll continue to expand the scope to include oil and other commodities.

To all the fathers out there, have a Happy Father's Day tomorrow!