Jeffrey Friedman, senior market strategist at Lind-Waldock, reveals how he's trading gold ahead of the U.S. nonfarm payroll report on Friday.
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Tuesday, August 31, 2010
Sunday, August 29, 2010
High Volume Resistance Plagues Precious Metals, Crude Oil & SP500
Last week was a relatively strong week for stocks and commodities. Although the SP500 closed slightly lower on the week the price action Friday was strong. The recent pop in commodities has everyone feeling good and bullish again and we all know how the market works… When everyone is feeling good the market has a way of shaking things up.
Below are a few charts showing heavy volume resistance levels that will most likely cause the broad market & commodities to pullback or trade sideways for a few days as buyers and sellers play tug-o-war.
SLV – Silver Bullion ETF Trading
Silver had a very nice pop last week but if you step back and look the recent price action you can see that it’s still trading below the previous major bounce from back in June. It looks as though silver is a little over extended as large percentage moves tend to give back 25-50% of the mover shortly after.
Take a look at the price by volume bar. It shows there has been heavy volume traded at that $19.00 level and the previous time it was reached sellers stepped back in pulling silver down.
GLD – Gold Bullion ETF Trading
Gold is trading deep into the resistance level and struggling to hold up. Last week we went long GLD after the bullish engulfing candle and took profits near the high two days later on Thursday’s price. Although gold is trading at resistance the intraday price action remains somewhat bullish/neutral for the time being.
USO – Oil ETF Trading
The oil ETF broke down from its large multi-month bear flag and is now bouncing up to test that breakdown/resistance level. This could be a possible kiss good bye. I will keep my eye on this commodity as it could provide us with a great shorting opportunity in the coming days.
SPY – SP500 ETF Trading
The equities market has been tried to bottom all week and Friday’s price action looks strong. While the chart looks strong the market internals are telling me the opposite. Last week we saw a gap down and Friday that gap window was filled. With heavy volume resistance just above the current price the odds are pointing to lower prices.
Weekend Equities and Commodities ETF Trading Report:
In short, it looks as though everything is trading just under or at resistance levels. That means sellers will start to enter the market and cause prices to stall (trade sideways/choppy) and or reverse lower.
That being said, with Friday’s strong close for oil and the sp500 I am expecting a gap higher in the morning because traders will review those charts this weekend and enter the market Monday feeling bullish.
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Below are a few charts showing heavy volume resistance levels that will most likely cause the broad market & commodities to pullback or trade sideways for a few days as buyers and sellers play tug-o-war.
SLV – Silver Bullion ETF Trading
Silver had a very nice pop last week but if you step back and look the recent price action you can see that it’s still trading below the previous major bounce from back in June. It looks as though silver is a little over extended as large percentage moves tend to give back 25-50% of the mover shortly after.
Take a look at the price by volume bar. It shows there has been heavy volume traded at that $19.00 level and the previous time it was reached sellers stepped back in pulling silver down.
GLD – Gold Bullion ETF Trading
Gold is trading deep into the resistance level and struggling to hold up. Last week we went long GLD after the bullish engulfing candle and took profits near the high two days later on Thursday’s price. Although gold is trading at resistance the intraday price action remains somewhat bullish/neutral for the time being.
USO – Oil ETF Trading
The oil ETF broke down from its large multi-month bear flag and is now bouncing up to test that breakdown/resistance level. This could be a possible kiss good bye. I will keep my eye on this commodity as it could provide us with a great shorting opportunity in the coming days.
SPY – SP500 ETF Trading
The equities market has been tried to bottom all week and Friday’s price action looks strong. While the chart looks strong the market internals are telling me the opposite. Last week we saw a gap down and Friday that gap window was filled. With heavy volume resistance just above the current price the odds are pointing to lower prices.
Weekend Equities and Commodities ETF Trading Report:
In short, it looks as though everything is trading just under or at resistance levels. That means sellers will start to enter the market and cause prices to stall (trade sideways/choppy) and or reverse lower.
That being said, with Friday’s strong close for oil and the sp500 I am expecting a gap higher in the morning because traders will review those charts this weekend and enter the market Monday feeling bullish.
Just click here if you would like to get Chris Vermeulen's ETF Trade Alerts for Low Risk Setups
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Monday, August 23, 2010
Place Your Gold Stops Here ...
Learn To Trade Oil and Gold ETF's
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Sunday, August 22, 2010
Are Gold & SP500 Topping Out Here?
Prices continue to churn as traders and investors try to figure if they want their hard earned dollar in cash or investments. The market is very jittery simply because no one wants to get caught on the wrong side of the market if it makes another 30-40% move, which is why we are seeing money rotate in and out each with very little commitment and follow through. Until a major trend looks to be in place most investors will not me holding many positions over night or through the weekend.
Here are a couple charts on what I think is most likely to happen in gold and the sp500.
GLD – Gold ETF Daily Chart
Last week we saw gold move higher by 1% but I cannot help but think a sharp sell off is only days away from being triggered. Either we get a another pop into resistance which would eventually trigger a wave of sellers and cause a sharp drop or the price of gold will drift lower to eventually break a key support level and trigger stop orders. Once the stops start to get triggered I would expect follow through selling for a couple days which will pull the price of GLD back down to the $113-116 area.
Also there is a possible head and shoulders pattern forming on this chart which is not picture perfect one but, it’s important to be aware as a neckline break could trigger massive selling and pull GLD down to the $100 area. But that would not unfold for several weeks if not months.
SPY – SP500 ETF
SP500 broke down from the support trendline two week ago and has since been trying to bounce. Last week we did see a two day pop but was given back Thursday. As you can see there is a possible mini head & shoulders pattern forming and the current price is testing the neckline. A breakdown below this should trigger a move to the $102 level.
Weekend Trading Conclusion:
In short, the market is trading at a key support level and this week should be exciting. Looking at several large cap stocks I am seeing bear flags on a large percentage of charts. Seeing these forming makes me think lower prices are just around the corner.
It looks like low risk trading setups are about to start popping up across the board and if we get a powerful trend going into the year end there will be some good money made for those on the proper side.
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Here are a couple charts on what I think is most likely to happen in gold and the sp500.
GLD – Gold ETF Daily Chart
Last week we saw gold move higher by 1% but I cannot help but think a sharp sell off is only days away from being triggered. Either we get a another pop into resistance which would eventually trigger a wave of sellers and cause a sharp drop or the price of gold will drift lower to eventually break a key support level and trigger stop orders. Once the stops start to get triggered I would expect follow through selling for a couple days which will pull the price of GLD back down to the $113-116 area.
Also there is a possible head and shoulders pattern forming on this chart which is not picture perfect one but, it’s important to be aware as a neckline break could trigger massive selling and pull GLD down to the $100 area. But that would not unfold for several weeks if not months.
SPY – SP500 ETF
SP500 broke down from the support trendline two week ago and has since been trying to bounce. Last week we did see a two day pop but was given back Thursday. As you can see there is a possible mini head & shoulders pattern forming and the current price is testing the neckline. A breakdown below this should trigger a move to the $102 level.
Weekend Trading Conclusion:
In short, the market is trading at a key support level and this week should be exciting. Looking at several large cap stocks I am seeing bear flags on a large percentage of charts. Seeing these forming makes me think lower prices are just around the corner.
It looks like low risk trading setups are about to start popping up across the board and if we get a powerful trend going into the year end there will be some good money made for those on the proper side.
Just click here to receive Chris Vermeulen's Free Weekly Trend Trading Reports and Market Updates
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Thursday, August 19, 2010
Gold, Silver, Crude Oil & SP 500 ETF Trends & Reversal Levels
Trading commodities and indexes through the use of exchange traded funds sure keeps things simple for an average trader. These funds allow individual investors to buy and sell things like gold, silver, oil, the sp500 and other investments which where not available only few months ago like “wheat” for example.
One of the nice things with ETFs is that they allow everyone to follow the price of a commodity or index using any charting website and can even apply indicators to help spot key support and resistance levels using volume by price analysis. There is no need for a expensive data feeds, charting programs and you don’t have to worry about contract expiration.
Below are a few charts of the trend and my short term forecast.....
GLD – Gold Bullion ETF
As you can see gold broke out of its support zone this week and popped into the next resistance level. This is very typical price action in the stock market. It is important to look at the price charts like an apartment building. It’s nothing but a bunch of floors and ceilings.
How it works; if a ball breaks though a floor it will naturally fall to the next floor and bounce. The same for if a ball breaks through a ceiling, it will hit the next ceiling then bounce back down. This is essentially how the market moves.
SLV – Silver ETF
Silver is forming a large pennant and nearing its apex. With the amount of volume traded within this large volume channel I would expect a sharp breakout once a direction is made.
USO – Oil Traded Fund
Crude oil had a funky day. Early Wednesday morning in pre-market trading we saw virtually every investment drop at the same time which was strange. Anyways the US dollar dropped sharply and oil when down also. Normally as the dollar drops oil rockets higher but that was not the case today.
Currently oil is trading between two trendlines and is trying to hold up. If we get a breakdown then we could see a sharp drop in oil over the next 1-2 weeks.
SPY- SP500 ETF Trading Fund
The SP500 is trading within a high volume channel, similar to silver. Once a breakout in either direction is made I would expect a sizable move lasting a few weeks.
Mid-Week Commodity and Index ETF Report
In short, the market looks bearish for the short term of 5-10 trading sessions. This is because everything looks to be trading near resistance levels. That naturally brings sellers out of the woodwork putting pressure on prices.
Silver and gold stocks tend to lead the metals sector on breakouts so it will be important to keep an eye on them as we near a possible breakout or breakdown in the metals. If you see SLV or GDX ETFs out performing the GLD gold fund by 2-3x then I would expect to see gold move higher later that session or the following day.
The US dollar trend usually helps to identify if oil will have downward pressure or not. Also energy stocks tend to lead the price of oil by a few hours and some times a day. I keep an eye on XLE energy etf for a feel of how the energy stocks are doing and also UUP US dollar fund.
As for equities tech, financials and the Russell 2K (small cap stock) tend to lead the way for the broad market. Watching XLK, XLF and IWM help to confirm breakouts.
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One of the nice things with ETFs is that they allow everyone to follow the price of a commodity or index using any charting website and can even apply indicators to help spot key support and resistance levels using volume by price analysis. There is no need for a expensive data feeds, charting programs and you don’t have to worry about contract expiration.
Below are a few charts of the trend and my short term forecast.....
GLD – Gold Bullion ETF
As you can see gold broke out of its support zone this week and popped into the next resistance level. This is very typical price action in the stock market. It is important to look at the price charts like an apartment building. It’s nothing but a bunch of floors and ceilings.
How it works; if a ball breaks though a floor it will naturally fall to the next floor and bounce. The same for if a ball breaks through a ceiling, it will hit the next ceiling then bounce back down. This is essentially how the market moves.
SLV – Silver ETF
Silver is forming a large pennant and nearing its apex. With the amount of volume traded within this large volume channel I would expect a sharp breakout once a direction is made.
USO – Oil Traded Fund
Crude oil had a funky day. Early Wednesday morning in pre-market trading we saw virtually every investment drop at the same time which was strange. Anyways the US dollar dropped sharply and oil when down also. Normally as the dollar drops oil rockets higher but that was not the case today.
Currently oil is trading between two trendlines and is trying to hold up. If we get a breakdown then we could see a sharp drop in oil over the next 1-2 weeks.
SPY- SP500 ETF Trading Fund
The SP500 is trading within a high volume channel, similar to silver. Once a breakout in either direction is made I would expect a sizable move lasting a few weeks.
Mid-Week Commodity and Index ETF Report
In short, the market looks bearish for the short term of 5-10 trading sessions. This is because everything looks to be trading near resistance levels. That naturally brings sellers out of the woodwork putting pressure on prices.
Silver and gold stocks tend to lead the metals sector on breakouts so it will be important to keep an eye on them as we near a possible breakout or breakdown in the metals. If you see SLV or GDX ETFs out performing the GLD gold fund by 2-3x then I would expect to see gold move higher later that session or the following day.
The US dollar trend usually helps to identify if oil will have downward pressure or not. Also energy stocks tend to lead the price of oil by a few hours and some times a day. I keep an eye on XLE energy etf for a feel of how the energy stocks are doing and also UUP US dollar fund.
As for equities tech, financials and the Russell 2K (small cap stock) tend to lead the way for the broad market. Watching XLK, XLF and IWM help to confirm breakouts.
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Tuesday, August 17, 2010
New Video: The Shine Comes Back to Gold
Our "Trade Triangle" technology flashed a buy signal on gold at $1,210.52 on August 12. Since that time the gold market has rallied some $15.
We think you'll find this video on one of the most emotional markets in the world to be right on the money.
Please feel free to add your insights on this market in the comments section. As always our videos are free to watch and there are no registration requirements.
Watch "The Shine Comes Back to Gold"
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Sunday, August 15, 2010
Gold Weekly Technical Outlook For Sunday August 15th
In the bigger picture, while the rebound from 1155.6 is strong, there is no change in our bearish view. That is rally from 1044.5 should have completed at 1266.5. More importantly, whole medium term rise from 681 should have finished with five waves up too, on bearish divergence condition in daily MACD. Whole fall from 1266.5 is expected to resume sooner or later to 1044.5 cluster support (38.2% retracement of 681 to 1266.5 at 1042.8) at least. After all, we'll stay medium term bearish in gold as long as 1266.5 resistance holds.
In the long term picture, we're proposing that 1266.5 is an important medium term top in gold and we should see a sizable correction going forward. A breach of 1000 psychological level is possible. However, there is no indication of long term up trend reversal yet. We'd maintain the long term bullish view and expect whole up trend from 1999 low of 253 to continue to 100% projection of 253 to 1033.9 from 681 at 1462 level after completing the correction from 1266.5.....Comex Gold Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts.
The "Super Cycle" in Gold and How It Will Affect Your Pocketbook in 2010
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Thursday, August 12, 2010
How to Take Advantage of Panic Selling for SP500 and Gold
Did you close out any long positions today? Well if not then you are one of a few!
Today (Wednesday) the market gapped down 1.5% at the opening bell which set a very negative tone for the session. Volume was screaming as protective stops triggered and traders close out positions before prices fell much further. This gap seemed to have caught several traders off guard but those of you who follow my newsletter knew something big was brewing and to keep positions very small.
Just before the close on Tuesday I had a buy signal for the SP500 which was generated from the extreme readings on the market internals. After watching the market chop around and get squeezed into the apex of the rising wedge the past 3 weeks I knew something big was about to happen and I did not want to get everyone involved because I felt a large gap was about to happen and the odds were 50/50. Instead we passed on the technical buy signal and waited to see what would happen Wednesday.
Below are a few charts showing one of my extreme reading indicators I use which helps me to identify possible short term bottoms.
SP500 – SPY Exchange Traded Fund
This daily chart of the SPY etf clearly shows that when we see panic selling in the NYSE which I consider 15+ sell orders to each buy order to be PANIC SELLING. This is shown using the purple indicator at the bottom of the chart. Today there was an average of 37 sell orders to every buy order which tells me the majority of traders are closing out all their long positions.
In an uptrend this indicator works very well and can help time a bottom within 1-4 days. As you can see on the chart below we just had a huge sell off and everyone seemed to be exiting their positions. This panic selling tends to carry over for a couple sessions until the majority of traders around the globe are finished selling.
The problem with this indicator is that in a down trend we tend to get these panic selling spikes regularly which means this time it may not work out because of the trendline break today which I think has officially changed the trend from up to down. Because of this possible down trend starting I feel its best to wait and see if it’s a dead cat bounce or if there are real buyers behind it, then we will take action to go long or short the market.
Market Internals – Put/Call Ratio & NYSE Advance/Decline Line – 60 Min Charts
Here are two charts which are currently at extreme levels. This typically means we a bounce should occur the following day or a gap higher. If you did not know there was a strong trendline breakdown today you most likely would have taking a small long position into the close.
The Put/Call ratio when above 1.00 means more people are buying put options, meaning they are leveraging themselves to make money if the market drops. As a contrarian indicator, if everyone is buying leverage to the down side then they should have sold their long positions already. That would mean most of the selling has already taken place in the market thus it should have some upward bias in the near term.
On the other side you can see the NYSE A/D line which shows how many stocks on the NYSE are advancing and how many have moved lower. When this indicator is below -1750 then we know the market is oversold on a short term basis and there should be some upward bias in the near future.
Now Lets Take A Look At Gold
Gold was left on the side of the road today as traders and investors focused on the equities market. I was actually a little surprised that it didn’t make a big move today because the US Dollar rocketed higher for the entire session. Anyone who has been watching gold closely already knows that gold is doing its own thing now… Some days it moves with the dollar, other days it does not… its become much more random than it used to be.
Anyways it looks to be forming two patterns… first one is a bull flag. If a breakout to the upside occurs that would send gold to the $1230-40 level.
The second pattern is a mini head and shoulders pattern which would send gold down to the $1180 area if the neck line is violated. It is a very tough call for gold.
Mid-Week Technical Traders Update:
In short, it’s going to take a day or two before we get a feel for the SP500 as we wait to see if it bounces with volume behind it. I personally would like a bounce so we can short it. It is unfortunate how the market broke down today. We were so close to getting a really good setup in either direction but the FOMC meeting shook things up and caused the large gap which in turn made a large group of traders miss that beautiful drop… It’s frustrating when you wait for something only to have a piece of news mess things up. That’s just part of trading though.
As for gold, I feel it’s a 50/50 trade and could go either way so I am not going to take a position right now. I’m just going to wait for the market to tip its hand a little more before I jump.
We hope you find this information useful. If you would like to receive Chris Vermeulen's trading reports, updates and ETF alerts be sure to visit his service at The Gold And Oil Guy .com
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Today (Wednesday) the market gapped down 1.5% at the opening bell which set a very negative tone for the session. Volume was screaming as protective stops triggered and traders close out positions before prices fell much further. This gap seemed to have caught several traders off guard but those of you who follow my newsletter knew something big was brewing and to keep positions very small.
Just before the close on Tuesday I had a buy signal for the SP500 which was generated from the extreme readings on the market internals. After watching the market chop around and get squeezed into the apex of the rising wedge the past 3 weeks I knew something big was about to happen and I did not want to get everyone involved because I felt a large gap was about to happen and the odds were 50/50. Instead we passed on the technical buy signal and waited to see what would happen Wednesday.
Below are a few charts showing one of my extreme reading indicators I use which helps me to identify possible short term bottoms.
SP500 – SPY Exchange Traded Fund
This daily chart of the SPY etf clearly shows that when we see panic selling in the NYSE which I consider 15+ sell orders to each buy order to be PANIC SELLING. This is shown using the purple indicator at the bottom of the chart. Today there was an average of 37 sell orders to every buy order which tells me the majority of traders are closing out all their long positions.
In an uptrend this indicator works very well and can help time a bottom within 1-4 days. As you can see on the chart below we just had a huge sell off and everyone seemed to be exiting their positions. This panic selling tends to carry over for a couple sessions until the majority of traders around the globe are finished selling.
The problem with this indicator is that in a down trend we tend to get these panic selling spikes regularly which means this time it may not work out because of the trendline break today which I think has officially changed the trend from up to down. Because of this possible down trend starting I feel its best to wait and see if it’s a dead cat bounce or if there are real buyers behind it, then we will take action to go long or short the market.
Market Internals – Put/Call Ratio & NYSE Advance/Decline Line – 60 Min Charts
Here are two charts which are currently at extreme levels. This typically means we a bounce should occur the following day or a gap higher. If you did not know there was a strong trendline breakdown today you most likely would have taking a small long position into the close.
The Put/Call ratio when above 1.00 means more people are buying put options, meaning they are leveraging themselves to make money if the market drops. As a contrarian indicator, if everyone is buying leverage to the down side then they should have sold their long positions already. That would mean most of the selling has already taken place in the market thus it should have some upward bias in the near term.
On the other side you can see the NYSE A/D line which shows how many stocks on the NYSE are advancing and how many have moved lower. When this indicator is below -1750 then we know the market is oversold on a short term basis and there should be some upward bias in the near future.
Now Lets Take A Look At Gold
Gold was left on the side of the road today as traders and investors focused on the equities market. I was actually a little surprised that it didn’t make a big move today because the US Dollar rocketed higher for the entire session. Anyone who has been watching gold closely already knows that gold is doing its own thing now… Some days it moves with the dollar, other days it does not… its become much more random than it used to be.
Anyways it looks to be forming two patterns… first one is a bull flag. If a breakout to the upside occurs that would send gold to the $1230-40 level.
The second pattern is a mini head and shoulders pattern which would send gold down to the $1180 area if the neck line is violated. It is a very tough call for gold.
Mid-Week Technical Traders Update:
In short, it’s going to take a day or two before we get a feel for the SP500 as we wait to see if it bounces with volume behind it. I personally would like a bounce so we can short it. It is unfortunate how the market broke down today. We were so close to getting a really good setup in either direction but the FOMC meeting shook things up and caused the large gap which in turn made a large group of traders miss that beautiful drop… It’s frustrating when you wait for something only to have a piece of news mess things up. That’s just part of trading though.
As for gold, I feel it’s a 50/50 trade and could go either way so I am not going to take a position right now. I’m just going to wait for the market to tip its hand a little more before I jump.
We hope you find this information useful. If you would like to receive Chris Vermeulen's trading reports, updates and ETF alerts be sure to visit his service at The Gold And Oil Guy .com
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Saturday, August 7, 2010
Gold Weekly Technical Outlook For Saturday August 7th
In the bigger picture, gold's rally from 1044.5 should have completed at 1266.5. More importantly, whole medium term rise from 681 might have finished with five waves up too, on bearish divergence condition in daily MACD. Below 1155.6 will bring deeper correction to 1044.5 cluster support (38.2% retracement of 681 to 1266.5 at 1042.8) at least. After all, even in case of strong rebound, we'd maintain that risk remains heavily on the downside as long as 1266.5 high holds.
In the long term picture, we're proposing that 1266.5 is an important medium term top in gold and we should see a sizable correction going forward. A breach of 1000 psychological level is possible. However, there is no indication of long term up trend reversal yet. We'd maintain the long term bullish view and expect whole up trend from 1999 low of 253 to continue to 100% projection of 253 to 1033.9 from 681 at 1462 level after completing the correction from 1266.5.
Comex Gold Continuous Contract 4 Hour, Daily, weekly and Monthly Charts
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Friday, August 6, 2010
Does Gold's Current Weakness Mean the Rally is Over?.....Here's Fridays Numbers
Gold was lower due to profit taking overnight but remains above the 20 day moving average crossing at 1190.00. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If October extends the rally off last week's low, the reaction high crossing at 1220.80 is the next upside target. Closes below the 10 day moving average crossing at 1181.50 would temper the friendly outlook.
First resistance is Wednesday's high crossing at 1203.90
Second resistance is the reaction high crossing at 1220.80
Friday's pivot point for gold is 1197.30
First support is the 10 day moving average crossing at 1181.50
Second support is last Wednesday's low crossing at 1157.50
Smart Scan Chart Analysis is showing some near term weakness. However, this market remains in the confines of a longer term Uptrend with tight money management stops.
Based on a pre-defined weighted trend formula for chart analysis, GLD scored +75 on a scale from -100 (strong downtrend) to +100 (strong uptrend):
+10.....Last Hour Close Above 5 Hour Moving Average
+15.....New 3 Day High on Wednesday
+20.....Last Price Above 20 Day Moving Average
-25.....New 3 Week Low, Week Ending July 31st
+30.....New 3 Month High in June
+75.....Total Score
Every Once in a While, You Find Something Amazing....Check out Trend TV
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First resistance is Wednesday's high crossing at 1203.90
Second resistance is the reaction high crossing at 1220.80
Friday's pivot point for gold is 1197.30
First support is the 10 day moving average crossing at 1181.50
Second support is last Wednesday's low crossing at 1157.50
Based on a pre-defined weighted trend formula for chart analysis, GLD scored +75 on a scale from -100 (strong downtrend) to +100 (strong uptrend):
+10.....Last Hour Close Above 5 Hour Moving Average
+15.....New 3 Day High on Wednesday
+20.....Last Price Above 20 Day Moving Average
-25.....New 3 Week Low, Week Ending July 31st
+30.....New 3 Month High in June
+75.....Total Score
Every Once in a While, You Find Something Amazing....Check out Trend TV
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Thursday, August 5, 2010
The Hidden Potential of Learning How to Trade SPX & Gold Options
J.W. Jones
Market technicians believe they operate in a world that few people truly understand. It is as if they believe they are working in some sort of secretive financial construct that only a few lucky souls away from Wall Street can access. The truth is that technical analysis should only be used as one metric to help a trader navigate financial markets.
There are a variety of research methodologies which all shed light and offer clues where the market may be heading. Market internals, the volatility index, Fed speak, and even fundamental analysis can be helpful to traders. It would not make sense to ignore market information that provides greater insight and additional clues that can help give a trader an edge. After all, the edge is what all traders seek. The sweet spot in trading is having a trading system that gives you an edge and offers a variety of way to quantify, mitigate, and define risk.
The same traders that only look to use purely technical analysis in their trading also fail to recognize other investment vehicles which might offer advantageous returns. The best kept secrets are always kept in the open, right beneath the public’s proverbial nose. People will travel the world in search of secrets or to prove theories, but in many cases the Holy Grail is lying right beneath their noses.
The greatest secret financial markets offer are the unbelievable potential returns that options can offer. Options offer a variety of ways to profit in a multitude of market conditions. Options offer unique profit engines that are not available or even possible when trading stocks or bonds. Most traders overlook options or are simply unwilling to put in the time or effort to learn how to trade them appropriately. In doing so, they are walking away from huge opportunities.
Most novice traders are quick to spurn options as they consistently lose money when trading them. The most common reason novice option traders experience losses is that they do not do their homework beforehand. New option traders fail to recognize the importance of “The Greeks.” Option traders not only have to be cognizant of the volatility index, but they have to be proficient in the dynamic factors that impact option prices such as implied volatility. In the future, my articles will be focused with the intent to educate readers about “The Greeks” in a way that is easy to read and understand.
Traders that utilize a trading system or that look for low risk entries find themselves sitting idle when market conditions are not favorable for their trading system or when prudent entries have not presented themselves. The ability to trade options gives a trader another investment vehicle that can offer potential profits. In most situations, options can offer attractive returns while taking significantly less risk than trading stocks, ETF’s or bonds.
In order to illustrate a situation where options can present a better risk versus reward, we need to look no further than intraday market action in the S&P 500 on August 2nd. The market rallied from the previous close and was bumping up against significant resistance. Traders could have been looking to get long or short based on recent price action. The market had been consolidating, and a significant move was likely coming.
Clearly the market was at a crossroads and a breakout could be right around the corner, or the market could test recent highs only to turn down to retest recent support. Stock traders have to make a decision about direction or sit on the sidelines and let others do the heavy lifting. Option traders could put on positions that have a directional bias, or they could utilize time decay (theta) as a profit engine.
Through the use of spreads such as an iron condor or a butterfly spread, option traders can actually put on a position that has the ability to be profitable regardless of which direction SPY goes. In order for a spread to work, SPY’s price must stay within the confines of the spread which is also determined by the specific option strike prices selected by the option trader. Similar to the mechanism that drives asset pricing, the more risk an option trader takes the greater their return. If a spread is written that is extremely wide and thus less risky, potential returns diminish.
Ultimately, this is a recent example of how options can offer more than just leverage, but a totally different methodology that can produce outsized profits. In the future, we will dissect the various spreads and the profit engines that drive them. However, before we begin detailed discussion of various option strategies, option traders must have a sound understanding of various volatility principles as well as the impact that the Greek’s have in the world of options. In closing, I will leave you with the muse of George Orwell, “To see what is in front of one’s nose requires a constant struggle.”
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J.W. Jones is an independent options trader using multiple forms of analysis to guide his option trading strategies. Jones has an extensive background in portfolio analysis and analytics as well as risk analysis. J.W. strives to reach traders that are missing opportunities trading options and commits to writing content which is not only educational, but entertaining as well. Regular readers will develop the knowledge and skills to trade options competently over time. Jones focuses on writing spreads in situations where risk is clearly defined and high potential returns can be realized.
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Market technicians believe they operate in a world that few people truly understand. It is as if they believe they are working in some sort of secretive financial construct that only a few lucky souls away from Wall Street can access. The truth is that technical analysis should only be used as one metric to help a trader navigate financial markets.
There are a variety of research methodologies which all shed light and offer clues where the market may be heading. Market internals, the volatility index, Fed speak, and even fundamental analysis can be helpful to traders. It would not make sense to ignore market information that provides greater insight and additional clues that can help give a trader an edge. After all, the edge is what all traders seek. The sweet spot in trading is having a trading system that gives you an edge and offers a variety of way to quantify, mitigate, and define risk.
The same traders that only look to use purely technical analysis in their trading also fail to recognize other investment vehicles which might offer advantageous returns. The best kept secrets are always kept in the open, right beneath the public’s proverbial nose. People will travel the world in search of secrets or to prove theories, but in many cases the Holy Grail is lying right beneath their noses.
The greatest secret financial markets offer are the unbelievable potential returns that options can offer. Options offer a variety of ways to profit in a multitude of market conditions. Options offer unique profit engines that are not available or even possible when trading stocks or bonds. Most traders overlook options or are simply unwilling to put in the time or effort to learn how to trade them appropriately. In doing so, they are walking away from huge opportunities.
Most novice traders are quick to spurn options as they consistently lose money when trading them. The most common reason novice option traders experience losses is that they do not do their homework beforehand. New option traders fail to recognize the importance of “The Greeks.” Option traders not only have to be cognizant of the volatility index, but they have to be proficient in the dynamic factors that impact option prices such as implied volatility. In the future, my articles will be focused with the intent to educate readers about “The Greeks” in a way that is easy to read and understand.
Traders that utilize a trading system or that look for low risk entries find themselves sitting idle when market conditions are not favorable for their trading system or when prudent entries have not presented themselves. The ability to trade options gives a trader another investment vehicle that can offer potential profits. In most situations, options can offer attractive returns while taking significantly less risk than trading stocks, ETF’s or bonds.
In order to illustrate a situation where options can present a better risk versus reward, we need to look no further than intraday market action in the S&P 500 on August 2nd. The market rallied from the previous close and was bumping up against significant resistance. Traders could have been looking to get long or short based on recent price action. The market had been consolidating, and a significant move was likely coming.
Clearly the market was at a crossroads and a breakout could be right around the corner, or the market could test recent highs only to turn down to retest recent support. Stock traders have to make a decision about direction or sit on the sidelines and let others do the heavy lifting. Option traders could put on positions that have a directional bias, or they could utilize time decay (theta) as a profit engine.
Through the use of spreads such as an iron condor or a butterfly spread, option traders can actually put on a position that has the ability to be profitable regardless of which direction SPY goes. In order for a spread to work, SPY’s price must stay within the confines of the spread which is also determined by the specific option strike prices selected by the option trader. Similar to the mechanism that drives asset pricing, the more risk an option trader takes the greater their return. If a spread is written that is extremely wide and thus less risky, potential returns diminish.
Ultimately, this is a recent example of how options can offer more than just leverage, but a totally different methodology that can produce outsized profits. In the future, we will dissect the various spreads and the profit engines that drive them. However, before we begin detailed discussion of various option strategies, option traders must have a sound understanding of various volatility principles as well as the impact that the Greek’s have in the world of options. In closing, I will leave you with the muse of George Orwell, “To see what is in front of one’s nose requires a constant struggle.”
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J.W. Jones is an independent options trader using multiple forms of analysis to guide his option trading strategies. Jones has an extensive background in portfolio analysis and analytics as well as risk analysis. J.W. strives to reach traders that are missing opportunities trading options and commits to writing content which is not only educational, but entertaining as well. Regular readers will develop the knowledge and skills to trade options competently over time. Jones focuses on writing spreads in situations where risk is clearly defined and high potential returns can be realized.
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Gold and Crude Oil Shine Compared to the SP500
Commodities have been shining recently as the US Dollar loses its luster for investors. Also the weakening dollar has helped boost equities as a lower US dollar helps the large multi national companies. This report is a quick follow up from the Weekend report showing what the odds were favoring which was higher gold, oil and sp500. As of today each investment is unfolding as planned, once candle at a time.
GLD – Gold ETF Trading
In my last report I pointed out how gold needed to break through its down trendline, the MACD had to crossover and then we needed to wait for a pullback which ends with a reversal candle to the upside. It seems gold is working its way through that process now.
Today’s Pop & Drop is not bullish price action and I expect we see a couple more down/sideways days before higher prices are reached. There are two bullish ways gold could pullback. First one would be a drop to $115 area with below average volume which could form the right shoulder of a reverse head & shoulders pattern, or we could see prices just fade sideways on light volume for 2-4 days before another up move starts.
USO – Oil Trading Fund
Oil just had a 3 day pop and with today’s doji candle the chart is saying it needs a breather. That also falls inline with the price of the US dollar which should continue higher tomorrow (Thursday Aug 5th) putting downward pressure on crude oil.
SPY – SP500 ETF Trading Signals
SP500 had a nice pop on Monday taking it up to the first key resistance level. The best play would have been to buy last Thursday or Friday when it dropped down to support unfortunately the intraday charts at that time were not that healthy looking.
I am not a fan of trading breakouts because so many of them fail and you end up paying a premium for your position and they can end up going against you very quickly. Rather I focus on trying to pick things up at support or sell them at resistance.
If we see the price pause for another 1-4 days on light volume and hold above the support trendline we could have a great low risk entry point with a stop set just below support. Or we could see a pop then pullback to test the breakout level as which point we can take a long position. This play needs to mature a little more.
Mid-Week Gold, Oil and Index Trading Conclusion:
In short, Gold, Oil and the SP500 look ready for a small pullback or some sideways price action. It will be interesting to see how strong the pullback will be on the SP500. The chart pattern and volume while they favor higher prices at the moment, if the support trendline is breached then selling volume will most likely spike and a sharp decline will occur causing the SP500 to drop approximately 3% all the way down to the $109 area.
If you would like to test out Chris Vermeulen's trading service which has a 30 day money back guarantee visit his site at the The Gold and Oil Guy.
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GLD – Gold ETF Trading
In my last report I pointed out how gold needed to break through its down trendline, the MACD had to crossover and then we needed to wait for a pullback which ends with a reversal candle to the upside. It seems gold is working its way through that process now.
Today’s Pop & Drop is not bullish price action and I expect we see a couple more down/sideways days before higher prices are reached. There are two bullish ways gold could pullback. First one would be a drop to $115 area with below average volume which could form the right shoulder of a reverse head & shoulders pattern, or we could see prices just fade sideways on light volume for 2-4 days before another up move starts.
USO – Oil Trading Fund
Oil just had a 3 day pop and with today’s doji candle the chart is saying it needs a breather. That also falls inline with the price of the US dollar which should continue higher tomorrow (Thursday Aug 5th) putting downward pressure on crude oil.
SPY – SP500 ETF Trading Signals
SP500 had a nice pop on Monday taking it up to the first key resistance level. The best play would have been to buy last Thursday or Friday when it dropped down to support unfortunately the intraday charts at that time were not that healthy looking.
I am not a fan of trading breakouts because so many of them fail and you end up paying a premium for your position and they can end up going against you very quickly. Rather I focus on trying to pick things up at support or sell them at resistance.
If we see the price pause for another 1-4 days on light volume and hold above the support trendline we could have a great low risk entry point with a stop set just below support. Or we could see a pop then pullback to test the breakout level as which point we can take a long position. This play needs to mature a little more.
Mid-Week Gold, Oil and Index Trading Conclusion:
In short, Gold, Oil and the SP500 look ready for a small pullback or some sideways price action. It will be interesting to see how strong the pullback will be on the SP500. The chart pattern and volume while they favor higher prices at the moment, if the support trendline is breached then selling volume will most likely spike and a sharp decline will occur causing the SP500 to drop approximately 3% all the way down to the $109 area.
If you would like to test out Chris Vermeulen's trading service which has a 30 day money back guarantee visit his site at the The Gold and Oil Guy.
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Wednesday, August 4, 2010
Gold Demand Higher as Driven by China
In the Eurozone, the services PMI rose to 55.8 in July from 55.5 in the prior month. A composite index surveying purchasing managers in both the services and manufacturing sectors improved to 56.7 in July from 56 in June. In Germany, accelerated growth was also seen in both sectors with the services and manufacturing PMI soaring to 57.3 (June: 54.8) and 61.2 (June: 58.4), respectively in July. However, these data were upstaged by worries over a US slowdown. Stocks in Asia and Europe dropped with the MSCI Asia Pacific Index losing -0.6% and Stoxx600 Index down -0.7%.
Gold price continued to be boosted by China's deregulation in gold market. The benchmark contract touched 1200.2 for the first time in 2 weeks. The liberalization in gold trading should boost both private and public demands, though effect from the latter should be rather gradual.
Yu Yongding, member of the state-backed Chinese Academy of Social Sciences and a former central bank adviser, expressed concerns over the safety of US Treasuries in the medium- and long-run as a 'scary trajectory' of budget deficits and an increasing supply of dollars may depreciate their values. In mid-July, Yu warned that China should reduce its USD holdings to diversify risks of 'sharp depreciation'. While these comments were in contrary with what SAFE mentioned last month that US government bonds have 'relatively good' safety, liquidity, low trading costs and market capacity, suggestions of reserve diversification do trigger speculations of higher official demand for gold in China.
Although China is the world's largest gold producer and the second largest consumer, its gold market is in deficits and it still depends on external sources to satisfy the needs. Currently the Chinese central bank is the 6th largest gold holders, with 1054.1 tons as of June 2010. However, the holdings only represent 1.6% the country's total reserve. If it's to increase its holdings comparable to other Asian counterparts, it will need to increase holdings by almost +50% (eg, Singapore has gold holdings 2.4% of total reserve).
Rising production cost in Australia is hurting profits in the countries' mining companies. As unveiled at the Diggers & Dealers conference, the cost to produce gold in Australia, the second largest producer after China, was running at around $1000/oz, compared with $400-500 in West Africa. Some large producers in the country admitted they are looking for opportunities in West Africa and other low-cost regions. Should gold price fall below 1000, Australian producers are likely to cut production and they should help support price.
From Oil N' Gold Focus Reports
New Video: How to Spot Winning Trades
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Monday, August 2, 2010
This Year, Write Your Own Success Story
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Sunday, August 1, 2010
How to Find Low Risk SP500, Gold & Crude Oil ETF Setups
As we all know there is an unlimited amount of ways to trade the financial markets. Each person sees the market in a different way, has different skill sets, trading experience and risk tolerance levels. While some individuals create and use complete systems to make money there are some very basic trading strategies which still work well and require nothing more than basic charting, patience and a little money management.
Let me explain:
SPY – SP500 Index Trading Fund
You can clearly see the longer term trend which is down (blue trendine). But from simply drawing a couple trendlines and looking at the MACD (momentum) indicator you can see there is a possible trend reversal taking place. So far the SPY has broken out of its down trendline with a 4 day pop, and it’s now pulled back down to test support. A close below the trend line or the 50MA would be the exit points if the market did start to go south.
The SP500 is still stuck under major resistance, its 200 day moving average. But is trading above key support levels (20MA, 50MA and Trendline). I can feel the tension in the market between traders and we are about to see a big move once a breakout to the upside or down side is established. At this time its best to be in cash or have a small position with a protective stop in place. Once a trend starts there should be some low risk entry points along the way. If we see a strong reversal to the upside On Monday or Tuesday I would expect big buyers would step in to catch this new trend up.
Trading Fund
Looking at the price of gold we can see the trend is still down along with the momentum. A breakout would be the first step towards a possible entry point but I prefer to wait for a pullback after the breakout has taken place. Once we get a test of support I look to enter a position once there is a strong reversal candle to the upside. From there I draw a new support trend line from the previous low and connect it to the new pivot low (bottom of reversal candle). That becomes my new protective stop.
Gold still has some work to do before I would even be interested in taking a long position for a swing trade. But on a short term time frame (intraday charts) gold looks to be forming a low risk setup which I hope unfolds for my subscribers this week.
USO – Crude Oil Trading Fund
Oil has been trading in a large bearish pennant for the past 2 months and it is nearing the apex of this pattern. The longer term picture of oil is bearish but the most recent dotted trend line and the 20/50MA crossover is signaling some strength. Also the momentum for oil is positive and that helps support the price also. Again if this was to breakout to the upside I would wait for a low volume pullback to test the breakout level, then enter on a reversal back up.
Oil is one of the more challenging commodities to trade because it is affected by the US Dollar, Political Events, and Weather. In short, even if you had the analysis and timing correct there are other factors which move the price of oil on a regular basis that could quickly turn the trade against you. That being said, keep trades small when trading oil.
Trading Setups:
In short, trading can be complex, simple or somewhere in between. You can spend 14 hours or 20 minutes a day analyzing it depending on what investments you trade, whether you’re trading full time or just checking up on longer term investments.
This analysis and basic strategy shown above can be profitable if followed correctly and works for stocks, commodities and indexes. It’s just to show how simple one can swing trade the market using very basic analysis. Personally I use a much more complex strategy incorporating 15+ other data points which allows for precise entry and exit points.
GET "Chris Vermeulen's" FREE WEEKLY TRADING REPORTS DELIVERED TO YOUR INBOX!
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Let me explain:
SPY – SP500 Index Trading Fund
You can clearly see the longer term trend which is down (blue trendine). But from simply drawing a couple trendlines and looking at the MACD (momentum) indicator you can see there is a possible trend reversal taking place. So far the SPY has broken out of its down trendline with a 4 day pop, and it’s now pulled back down to test support. A close below the trend line or the 50MA would be the exit points if the market did start to go south.
The SP500 is still stuck under major resistance, its 200 day moving average. But is trading above key support levels (20MA, 50MA and Trendline). I can feel the tension in the market between traders and we are about to see a big move once a breakout to the upside or down side is established. At this time its best to be in cash or have a small position with a protective stop in place. Once a trend starts there should be some low risk entry points along the way. If we see a strong reversal to the upside On Monday or Tuesday I would expect big buyers would step in to catch this new trend up.
Trading Fund
Looking at the price of gold we can see the trend is still down along with the momentum. A breakout would be the first step towards a possible entry point but I prefer to wait for a pullback after the breakout has taken place. Once we get a test of support I look to enter a position once there is a strong reversal candle to the upside. From there I draw a new support trend line from the previous low and connect it to the new pivot low (bottom of reversal candle). That becomes my new protective stop.
Gold still has some work to do before I would even be interested in taking a long position for a swing trade. But on a short term time frame (intraday charts) gold looks to be forming a low risk setup which I hope unfolds for my subscribers this week.
USO – Crude Oil Trading Fund
Oil has been trading in a large bearish pennant for the past 2 months and it is nearing the apex of this pattern. The longer term picture of oil is bearish but the most recent dotted trend line and the 20/50MA crossover is signaling some strength. Also the momentum for oil is positive and that helps support the price also. Again if this was to breakout to the upside I would wait for a low volume pullback to test the breakout level, then enter on a reversal back up.
Oil is one of the more challenging commodities to trade because it is affected by the US Dollar, Political Events, and Weather. In short, even if you had the analysis and timing correct there are other factors which move the price of oil on a regular basis that could quickly turn the trade against you. That being said, keep trades small when trading oil.
Trading Setups:
In short, trading can be complex, simple or somewhere in between. You can spend 14 hours or 20 minutes a day analyzing it depending on what investments you trade, whether you’re trading full time or just checking up on longer term investments.
This analysis and basic strategy shown above can be profitable if followed correctly and works for stocks, commodities and indexes. It’s just to show how simple one can swing trade the market using very basic analysis. Personally I use a much more complex strategy incorporating 15+ other data points which allows for precise entry and exit points.
GET "Chris Vermeulen's" FREE WEEKLY TRADING REPORTS DELIVERED TO YOUR INBOX!
Share
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