Trend Trading Gold, Silver, Oil & SP500
Source: Chris Vermeulen, Technical Traders (6/1/10)
Last week looked and felt pivotal for both stocks and commodities.
I will admit, it has been tougher to trade recently because of increased risk levels due to the large 2%–4% selloffs and rallies happening within minutes. . .While this is amazing for disciplined and experienced traders who are able to pull the trigger getting in and out with quick profit in the matter of minutes, this same price action can blow up trading accounts of those who do not have a trading strategy, money management and the discipline to take profits and cut losses very quickly. The speed of the rallies and selloffs is the matter of being up or down thousands of dollars in the matter of 5–10 minutes. . .That is one of the reasons I have stepped back from being aggressive and into more of an observation mode, playing with small amounts of money and focusing on the larger trends.
My #1 goal is to make subscribers money with the least amount of risk, and watching the market swing 2%-4% in minutes makes it extremely difficult to get everyone in and out of positions with a profit before the market changes directions. As much as I love trading, sometimes the best position is to have small ones, or to be in cash.
GLD—Gold ETF Trading
Here is my weekly updated chart of gold as it works its way through the correction from last year. The daily chart looks to be forming a larger cup and handle pattern, which is extremely bullish. If this pattern does a textbook move, then we could see GLD reach $140 and spot gold would reach the $1,400 area.
That said, this pattern still has to complete the handle portion, which could easily last another four weeks, so I am not in a panic to add more to our position.
SLV—Silver ETF Trading
Silver is in much of the same situation. Because of the added volatility in silver the charts do not look quite the same, but they are similar in many ways. . .Silver is used a lot for industrial purposes and because of the economy, which is still very weak (though it is getting better), we are not seeing silver demand rise much. If silver can break this large resistance level, then we could see silver surge to $25 (25%) this year.
USO—Oil Fund Trading
USO (Oil) has held up really well in the past 12 months, but the recent selloff has seriously damaged the bullish outlook I had not long ago. While it is oversold and looks to have started a bounce last week, the chart is pointing to lower prices over the longer term. . .This USO fund does have contango, which makes this fund underperform the actual price of oil. The current prices of oil are still trading at a key support level and could post nice bounce, if not trigger a new rally. The problem with following some ETF's, which have contango, is that you do not see the real price action of the commodity. But that is where I come in, as I track the underlying commodity and relate it to ETFs for you.
SPY—SP500 ETF Trading
The Stock Market (SP500) sure has been a roller coaster. The chart below shows you what happened in January for the last correction and where we stand currently in comparison. If a setup is obvious in the financial market, there is a very high chance it will not work out as planned and by knowing this it allows us to be cautious and take profits at key short-term support and resistance levels.
Trend Trading Conclusion:
In short, I feel gold and silver will drift around to digest the recent move up and to form the handle portion. Oil looks to have put in a short-term bottom, and if we get a small pullback in the coming days to test the intraday chart breakout level and touch the support trend line, we could look to take a position.
We tend to see the most price appreciation during the final stages of a trend, and we could have seen that on the USD over the past six weeks. It looks as though the dollar could have put in a double top. If the dollar rolls over, it would help boost precious metals, oil and stocks. . .But we will not know it's a top until there is a clear trend reversal, and in any case it will be weeks before that type of price action can unfold.
As for the SP500, we have seen the same level of selling as we did in Feb-March 2009. High-volume panic selling has ruled the market since late April. There are equal arguments for saying the market has bottomed with all the panic selling, and that we should start another large rally lasting 8–12 months, or one could argue this is capitulation volume signaling massive distribution of shares and now every rally/bounce will be sold. Personally, I am torn between the two, but lean more towards higher prices with a multi-month grind up at slow rate. . .
If you would like to receive my trading analysis, thoughts and low risk trading setups check out my trading services at www.TheTechnicalTraders.com.