SP500 & Gold at Crucial Pivot Points
Source: Chris Vermeulen, TheGoldAndOilGuy (9/3/10)
"Better-than-expected manufacturing surged the market 3%."
SPY—SP500 Exchange Traded Fund—60-Minute Chart
The market is currently in a downtrend, which means bounces get sold. But if you take a look at the buying volume ratio at the bottom of the chart you will notice that in an uptrend buying surges are the beginning of a rally, and during a downtrend buying surges are the end of a rally. I also want to mention that a lot of volume traded at this current level which you can see on the volume by price bars on the chart. This means there will be a lot of sellers to overcome before breaking to the upside.
The situation the market is in now makes things difficult to tell if this bounce will get sold, or if it's just the starting of a rally. There are several arguments for each side but the one I think has the most influence is the buying volume. It was very strong on this current bounce. It feels more like a rally but we will not know for sure for a couple days.
That being said, if the SP500 moves up Thursday, then I would consider it to be in an uptrend and exiting any short positions is a smart play. But, if this bounce is sold and the market drops, then the 3% rally on Wednesday could all be given back and then some.
GLD Gold ETF—60-Minute Chart
Gold has continued to grind its way up to the previous top. Problem is, the volume has been very light and that tells me there is not much demand for gold at these elevated prices. While we are still long gold, it is crucial to have your protective stop in place so we lock in as much profit as possible for when the sharp selling spike happens.
Midweek Technical Take:
In short, the market feels like its trying to reverse back up; but, at this time, it's still in a downtrend and trading under a key resistance level. This means trading with the trend and selling the bounces is still the play. Today's strong volume makes this bounce suspect. Keeping positions small and setting a protective stop should be done as a safety precaution. The next couple days will shed some light for sure.
As for gold, I am still bullish but expecting our protective stops to be triggered any day now, which means we get paid and can mark another successful trade down on the scoreboard.
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