How to Gauge the Equities Market
Source: Chris Vermeulen, TheGoldAndOilGuy (3/17/11)
"We must start watching closely for a bottom in gold. . ."
The chart below shows the percentage of stocks trading above the 20 moving average. When this indicator falls below 20%, I make sure I start to protect my short positions with more aggressive protective stops and keep an eye on short term sentiment, volume ratios, options and price action as a bottom can take place at any time and very quickly. Bottoms tend to be more of an event happening quickly with a washout/panic selling day followed by a sharp rally, while intermediate market tops drag out and take weeks—if not months—to roll over and are very difficult to trade, which is what we have been experiencing so far this year.
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As you can see, this indicator is currently trading in the lower reversal zone and I feel a bottom will form before March is over.
SP500 Daily Chart
The SP500 continued lower today, which is what I mentioned, would most likely take place in my pre-market video this morning. The trading session was a roller coaster with news on Japans reactors causing large waves of buy and selling throughout the day. I have not seen traders follow the news so close like this in some time. Everyone has his/her finger hovering over the buy and sell button these days.
Looking at the bottom indicator, which is my gauge of panic selling within the market, it has yet to close above 15—the minimum number I typically look for before I start zooming into the intraday charts for a long entry (market bottom). We still could see much lower prices before we see that.
Gold 4-Hour Chart
This chart is the same one I used in my Sunday night report, which explained why gold should test the $1,380–$1,390 level in the coming days. We did see that unfold this week but now the chart is pointing to possibly even lower prices with a support range of $1,360–$1,380 taking place this week. Keep an eye on it, as it should be swift if it does occur.
Midweek Trend Report
In short, we are finally getting the correction everyone has been waiting for; and now that it's started and we are short, we must start watching closely for a bottom because those can take place very quickly.
My focus is still on playing the short side, but I have my antennas up just in case signs of a bottom start showing up.
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