Adam Hewison: Is This Rally For Real?

What is behind this market’s rally? The market has been going higher on light volume and admittedly to an area that has presented problems for the S&P 500 in the past, the 1220 area. It is an important policy to respect market action, as we believe that trumps everything in the long run. The market is at some very crucial levels.

Looking back at the past two months, you can see we have just been in a very broad trading range. I believe that professional traders will be shorting the S&P 500 against the highs that were seen just recently. The risk is maybe 10 or 15 points and the downside is maybe 200 points. So the risk reward ratio is really quite attractive from a trading standpoint.

There are “two flies in the ointment” we see right now. First, the S&P 500 is heavily overbought on the Williams% R indicator and at resistance. Secondly, our monthly Trade Triangle continues to be negative for this market. I believe that this combination will begin to put this market on the defensive, perhaps even later today and next week.

It has been an interesting week and it would appear that all of the markets we track are closing against the major trends. This is not to say the markets have reversed course, rather we are seeing a counter trend rally against the bigger trends.

Now let's look at the gold market......

The spot gold market is up over $30 for the week. Unlike Silver, the gold market has a positive long term Trade Triangle indicating that the longer term trend is still positive. With a Chart Analysis Score of +65, we expect this market to continue to remain in a trading range. Gold has reached the midpoint of the Donchian trading channel, which will probably halt its upward momentum for the time being.

 We would not be surprised to see this sideways action continue for another week or so. I think most traders would be better off just watching from the sidelines until the volatility subsides. Only long term traders should maintain long positions with the appropriate money management stops in place.

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 65



Here's our week ending video covering the 6 major markets we track every day.

Adam Hewison: What A Difference A Day Makes

The song goes like this; “What a difference a day makes....” Gold, sharply lower on heavy profit taking and liquidation. Equities, sharply higher as all the problems in the world are solved. The U.S. dollar has a hiccup. Crude oil up on new demand? All this while the world waits for President Obama’s speech tomorrow evening. Here’s a rhetorical question for you, how many cans can you kick down the road at the same time? Well, if you’re a politician you become pretty adept at kicking as many cans as you want down the road.

The negative engulfing line for gold which we discussed yesterday was confirmed today. This market has now pulled back over $100 in just the last 2 days. To say the market is volatile, would be an understatement. With our long-term and intermediate term trade triangles still intact we have to believe that the trend is still higher. Certainly the $1900 an ounce level is resistance for gold at the moment.

The question is where will support come in on the downside? Right now we expect that the $1750 area all the way down to $1700 should be support for this market. Looking at the market visually it would appear as though we have possibly put in a double top. This will only be confirmed with a close below the $1750 level. Intermediate and long term traders should maintain long positions with the appropriate money management stops in place.

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = +55

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Just Three More Days To The Debt Deadline and What is Warren Buffetts Solution?

Just three more days to the debt deadline. I’m guessing that it is an artificial deadline made up for political reasons. I am positive that this is just an arbitrary date that some policy wonk came up with to get everyone up in arms about doing something with the debt.

I believe Warren Buffett had the best idea on how to end our debt problems. Here is what Warren had to say: “I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.” Way to go Warren!!!

Well, we have made it to the last day of the trading week and the last day of the trading month. The equity markets are, as of this writing, sharply lower for the week and also the month. Gold and Silver on the other hand, are sharply higher for the week and the month.

As we have been indicating, we felt the equity markets were rolling over to the downside. Technically we are getting closer to pulling the trigger on our major monthly Trade Triangle which sets the trend for the equity markets.

Now let’s take a look at what the markets are telling us and the direction they’re taking on this last trading day of the month.

S&P 500

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 70
Looking at the monthly S&P 500 index chart, a close around current levels would be the lowest close we’ve seen in this index for the past 6 months. The monthly PSAR comes in at 1256. As we have stated many times before, this is a line in the sand level that if broken would indicate further downside action.

SILVER (SPOT)

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = + 85
Silver is closing out the month with a gain of over 15%. The action continues to be positive and we expect this market to trade to the $43 level basis the spot market.

GOLD (SPOT)

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = + 100
In July, gold moved up over 8% and in doing so hit new all-time highs against the US dollar. The trend remains positive with all of our Trade Triangles positive and we have an intermediate target zone between $1640 and $1650.

CRUDE OIL (SEPTEMBER)

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 75
For the month of July, crude oil closed essentially unchanged. We still feel that this market is building an energy field to move higher. We want to closely watch this market in the coming days and weeks and look for a turn to the upside.

DOLLAR INDEX

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Positive
Combined Strength of Trend Score = – 55
The dollar index was essentially flat during the month of July with a loss of 0.62%. For the last four months, this index has been moving sideways unable to break out of its trading range. Eventually you will see this change and a stronger trend developing.

REUTERS/JEFFERIES CRB COMMODITY INDEX

Monthly Trade Triangles for Long Term Trends = Negative
Weekly Trade Triangles for Intermediate Term Trends = Positive
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 75

One of the reasons we eye this particular index so carefully and closely is because it is the indicator of inflation and deflation. In the month of July, this index closed up over 1%. The 350 level is the key level down to watch on the upside.

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