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More Flushes and Whipsaws
The chart pattern(s) everyone is watching
June 17th, 2012
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Hello:
This newsletter is being sent out a bit late this week - we wanted to wait until the Greek election results were in - and we were delayed 6 hours in the Colorado Springs airport by United Airlines. In this edition we will look at a single chart that may be ripe for a big move. We will also update our take on the broader market indexes. We would also like to say "welcome" to the many new subscribers to this newsletter. This past week, the number of new readers have just about doubled! We hope that you find something of value over the next few weeks. If you don't find this email valuable please drop us a note and let us know why - we would love to have the opportunity to add content that would provide more value to all readers. Please note: We sometimes send out real-time updates via twitter: If you wish to receive these updates, simply follow us: our handle is structuredmkts. ( http://twitter.com/#!/structuredmkts) |
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| S&P: Potential Intermediate Bottom In Place
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Last week, we mentioned that we would stand aside until there was a close above/below a key bar. Friday, we had a decisive close above the key bar we mentioned (but not after some ridiculous flushes and whipsaws). AND, we closed above some resistance levels. As much as we would like to remain bearish, the price action on Friday could only be called bullish. And, the market open this evening seems to be bearing that out. Two hours after the open, the price is retesting its opening high. We are looking forward to seeing where the day session opens tomorrow. (Personally, my bias is telling me to be cautious but the price action on the chart seems to contradict that.)
And now - the latest edition of "egg on our face". The internals of the market support a short term bottom now. A couple of weeks ago when the low point of the downtrend was established, there was a divergence in the NEWHIGH-NEWLOW index relative to price. This is normally a very reliable signal but at the time, we thought it was only going to lead to a short term bounce - primarily because some monthly oscillators were set to correct. We certainly did not expect price to get through any significant resistance areas. For now though, it appears that we were wrong to ignore that signal. Put into context, that was a GREAT signal because the trend was still UP. If the daily chart was in a true down-trend then maybe we could have had better justification for ignoring the signal. So, as of this writing, we have egg on our face (internally at least because we didn't publish anything that even mentioned the signal). There are few things worse than seeing the obvious in hind-sight!
Having said all that, we have to suggest that the low that was put in a couple of weeks ago should hold for now. We would look to buy any two day pullback - as long as the pullback does not take out last Fridays low (that is this weeks key bar for us). A close below Fridays low anytime in the early part of this week would give us reason to be bearish again.
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| Metals - Gold
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Last week, we published the above chart for Gold. Even though price continued to flush hard, buyers kept stepping in - only to be met with sellers at the upper end of the range. Therefore, we'd like to show an alternate chart of gold this week because we feel that there is a strong possibility that a breakout to the upside is around the corner.
The chart above is a daily chart (of gold). We have redrawn the upper trend line to be closer to the price action - calling the early 2012 rally an out-of-line movement. You can see the multiple attempts to break up above the redrawn upper trendline. At this point, with a triple-bottom in place, any close above the upper trendline shown would be a solid reason to go long this market.
Many of you will have questions as to why it is ok to redraw the trendline. The answer is simple - trendlines are subjective but we do know that the more touch points a trendline has, the more reliable it is. Given that the redrawn trendline has quite a few touch points, it is possible that we can get a reliable trade EARLIER than we would if we waited for the original trendline to be penetrated. The price points that strayed outside the redrawn trendline did not spend much time above it and so we can deem that an out-of-line movement.
Caution: DO NOT TRY TO GET CUTE AND BUY NOW. WAIT FOR THE BREAKOUT!!! Price can do whatever it wants and no more so than inside of a consolidation area. In the long run, you are better off waiting for the breakout instead of being aggressive inside of the consolidation where whipsaws are likely to do major damage to your trading account. In fact, if price does NOT breakout to the upside and instead breaks below the triple bottom later this year, that would be extremely BEARISH!
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| The Trade(s)
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S&P: Buy any two day pullback - as long as price does not take out last Friday's low. If price does close below Friday's low, then look for setups to the short side.
GOLD: Wait for gold to close above the upper trendline shown then either go long for a breakout trade or buy pullbacks. For now, stand aside.
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| Important Risk Disclosures and Legal Disclaimers - This stuff is important!
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First you should realize that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS! The risk of loss in trading commodities can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage that is often obtainable in commodity trading can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
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| Other Information
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