Back-to-Back Reversals

Source:

"Something big is about to happen. . ."

The market continues to become quicker and fiercer as it moves up and down 2%+ on a regular basis. This week, we've seen some wild price swings due to earnings, events and the Fed, which just makes trading that much more intense.

Yesterday, I pointed out that this market gives you only a brief moment to take profits before it starts going wild shaking traders out of positions. This increased volatility is caused from a couple of things:
  1. Traders/investors know the financial system is still riddled with unethical practices/manipulation. This causes everyone to be extra jumpy/emotional and causes volume surges in the market as the herd starts to get greedy or fearful.
  2. Volume, overall on the buying side of things, just isn't there. I see some nice waves of buying, but it doesn't move the market up much. . .then it only takes a small wave of sellers for the market to drop. Investors are just scared to buy stocks and that is not a good thing.
I keep a close eye on the buying and selling volume for the NYSE, as it tends to help pin tops and bottoms within a two to three day period. In short, when we get panic buying—meaning 75%+ of volume is from buyers—then I know the general public is jumping into the market buying up everything, and that's when the smart money starts to scale out of position selling to these retail investors. These retail investors are buying on news and excitement much like what we are seeing now with earnings season. Stocks have run up for 5–10 days, as the smart money buys in anticipation of good news; then the earnings are released, which are better than expected, and the stocks pop and drop. Well the pop higher on BIG volume results from all the retail investors buying, as they are generally the last ones in. The smart money is quickly selling into this buying surge, so they end up getting out at high prices.

My point here is that, in general, I see four to six of these panic buying or selling days a year, which I find are tradable. The crazy part is that we have seen 11 of these panic days (both buying and selling) in just eight weeks, we are seeing more selling than we did at the bottom in 2009! Something big is about to happen and I want to make sure we get a price of it once the moves starts.

Anyways, following is a chart of the SP500 showing how it's trading under some key resistance levels. Today the market gapped up testing the 50-day moving average and above the 5-day moving average, and then sold down very strongly during Ben Bernanke's speech. This is not a good sign for the overall health of the market.

Chris_Vermeulen

On the commodities side of things, we are not seeing much happening with gold or oil at the moment. Gold is still in a short-term down; and gold took an $8 drop when Ben Bernanke said inflation would remain low for an extended period of time.

As for crude oil, yesterday I pointed out to members that oil had a big run up on virtually no volume Tuesday and it would most likely give back those gains today. We saw this today with oil dropping from $78 to 76.50 per barrel. Overall, oil looks like it wants to go higher but has some work to do before that can happen.

Midweek Trading Conclusion:

The market remains choppy and we are getting more than normal news/events, which are moving the market; this is causing extra noise and volatility for traders. Cash is king during volatile times; so if you are doing some trades, be sure to keep the positions small for another month or so.

If you would like to receive my detailed trading analysis and alerts, be sure to check out my websites at www.TheGoldAndOiGuy.com or www.FuturesTradingSignals.com.

Chris Vermeulen

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe