Here at TMTF, I enjoy making controversial calls based on Human Behavioral topping and bottoming patterns, often referred to as Elliott Wave Theory. This is a difficult pattern recognition model to follow as there can be numerous interpretations. Instead, I look for additional clues like sentiment indicators, a few traditional technical indicators, headlines in the news and covers of papers etc. Recently I saw an article on Bloomberg indicating that short positions were at two year lows, with the ratio of longs to shorts at 2 year highs. Those types of indicators I use to help confirm if I’m on the right or wrong track with a forecast.
Right now I think the SP 500 and markets are topping in a counter-trend ABC-X-ABC rally that really started with the May 25th lows of 1040, to the June 21st highs of 1130, back to the Jul 1 lows of 1011, and now to 1121 so far the highs. That 1121 number is a Fibonacci 50% re-tracement of the 2007 to 2009 highs to lows, and just 9 points below a 61% re-tracement upwards of the April highs to July 1st lows. Evidence mounts now that August could prove tough for Bulls and some risk aversion here is a good trade in my opinion.
Back in late June I saw similar sentiment and Elliott Wave topping patterns in Gold as well. The headlines were bullish, the talking heads on CNBC were all saying to buy any dip in gold and stay long. A 21 month rally was topping and I went ahead and stuck my neck out and predicted a multi month correction. Since then Gold has dropped from $1243 to $1158 at it’s recent low, and should be heading to $1043 eventually if I’m right. It takes awhile to knock the sentiment down from overly optimistic levels, just like with the SP 500 top in April which I forecasted in mid April as well.
The SP 500 would need to clear 1130 aggressively for me to cave in and call 1011 the bottom. That was a 38% fibonacci re-tracement of the 13 month market rally, and it’s possible that was the bottom for sure. Normally though, you would at least get a re-test of that low, and possibly a drop to 942 area on the SP 500 which is a 50% fibonacci re-tracement of the 13 month rally. In addition, the pullback so far only lasted about 8 weeks relative to 13 months of rally, so I think there is another several weeks yet before we can call a bottom in 2010.
Below is an interesting chart showing recent action since late May in the SP 500 index. Investor’s like to act in patterns and this seems to show a good one. Best to you and your trading!
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At Active Trading Partners, we believe that nobody can predict exact bottoms nor tops, but we can certainly come close. In light of that belief, we “scale in” to our preferred trade set ups using 1/3 tranches at a time. Using our backdrop of looking for waterfall decline entry points for reversal profits, we add in some Elliott Wave theory and Fibonacci figures to mix up our recipe. As we see a trade set up coming around the bend, we begin to “Scale In” to our trades as each Fibonacci or Wave pattern is reached.
Samples are our recent trade into BGZ, which is 3x short the Russell 1000 Index. The Elliott Patterns we interpreted said the market rally would wane as we hit 1071/1074, 1085, and 1092. As those areas were hit on the SP 500, we would purchase 1/3 positions into BGZ, inevitably profiting from the overbought reversal to the downside in the markets. This reversal happened on cue on Friday last week, July 16th. Our BGZ position rose 8.5% in just one day of trade, allowing us to enter into a “green” profitable territory on our scaled in position.
Scaling in eliminates the traders desire to let the ego over-take their emotions. By this, we mean your trading system is useless if your emotions can’t be kept in check both on the downside and the upside. At ATP, we try to combat that by scaling into and out of positions, forcing ourselves to buy while others cry… and sell when they yell. It is extremely difficult to go counter-trend against the noise of the markets, but certainly if you plan to do so you must have a plan of action. Trading with emotion is a sure-fire way to lose money in the markets. Taking your time and being methodical with scale in entry points into a trade, reduces your risk of entry and allows for a much greater probability of profits, as well as greatly reduced losses on the trades in which you are wrong.
Never dive “all in” into a trade position, no matter how confident you are of the entry timing, chart, and price. Always scale in methodically. Worst case the position takes off to the upside for you and you didn’t buy a full position, but that is so much better than going all in one one trade and mis-timing your entry, costing your trading account major dollars.
I have forecast that at some point the physical silver market will dominate the paper silver market. The question I ask now is, “Are we there yet?”
In the past I have stated that, “The market is trading in a short squeeze fashion, and I think it best not to chase the market here, especially if you use leverage. The shorts must be sweating here and maybe, just maybe, they are going to feel much more pain during the next several trading sessions.”
This turned out to somewhat accurate for a brief moment in time as silver did move to the $21 level. (see my comments below)
As stated in an earlier report I went on to say, in my view, silver could keep moving up for several more trading days, but “normally,” buying pressure exhausts at some point. Please pay attention to this update, because we always must be aware of the fact that at some point, someone may call the silver bluff. Meaning someone, some entity, some sovereign wealth fund, stands for delivery of physical silver.
If, or more likely, when, this takes place, the whole dynamic of the silver market will change from being a paper-based derivative market (Comex) to one based upon the true physical demand for silver. I have predicted this to take place “at some point,” but do not think we are there yet.
I did my Silver Bullion Dealer survey, which I have not done for some time. I personally phone most of the major physical dealers in the U.S. and ask how the orders for silver bars, rounds, and bags are doing. What I found was that most dealers reported sales are somewhat slow currently however, it is almost all buying, very few sellers.
I did state that we will get a correction. In fact, one useful tool we have is the number of inquiries asking if or when a correction will take place. The more inquiries, the closer we get. But as reported in my newsletter, The Morgan Report, at some point the buying pressure exhausts, like a ball thrown straight up into the air eventually stops going up.
Silver entered into another parabolic rise, just like it has in the past. Because silver is becoming much more sought after as an investment, these moves go further before topping out. Where will the new top be made? It is possible it has been set at over $21 level. It turns out I called this one, and per our recommendation we took 25% of our money off the table at that point, waiting for a better buying opportunity.
Mr. Morgan has followed the silver and gold market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.
You can get his Ten Rules of Silver Investing — click here
David A. Banister- TheMarketTrendForecast.com
The market continues upward in either a C wave or Wave 2 corrective upside re-tracement if I’m correct. In reviewing the pattern since the April top this year, we have had clear Fibonacci retracement levels of the 13 month rally. These occurred at 1040 and 1011 areas so far, 31% and 38% fibonaci re-tracement levels of the Fibonacci 13 month rally.
Some are saying the market just bottomed at 1011 at the 38% re-tracement area, but the Elliott wave patterns that I rely on do not appear to me to be complete. I could still be wrong and we keep on climbing here and I get egg on my face, certainly possible. However, you don’t normally get a straight 8 of 9 days down pattern to 1011 like we just saw and then end a correction there as a C wave in an A B C pattern. C waves are made up of either 3 or 5 waves within, and that was one clear wave down. These happen in fast moving markets and lead to a rare correction pattern called a “running” correction.
In the video which is free to view off my website below, I educate and illustrate on how these look and apply it to the current state of the Market. I’m looking for the following MAX topping areas for all three indices. Dow 10450, Nasdaq 2295, and SP 500 1104-1115. We are within 1-2 % here of a nice reversal to the downside that can be played via shorting. The ultimate target remains 942 on the SP 500 index, and of course those are the 50% fibonacci downside levels of the 13 month rally, and would fit neatly into the first 180 point SP 500 drop from 1220-1040. This means 1130 is the recent major B wave top, and 180 points from there is about 950 to complete the correction pattern in this bull market. I am looking for sentiment to turn pretty negative again shortly.
Please review to get updated. This current rally has hit 1099 on the SP 500, past the 1092 area I saw the sliver gap on, but below the 78% re-tracement area as well, this 7 day rally is getting long in the tooth. Options expiry week makes it even harder, reminds me of my Mid April top call in fact here on Kitco.Com, it wasn’t long before the market rolled over hard. I am looking for the same here as well.
CLICK LINK BELOW TO VIEW VIDEO
Last week we saw stocks move sharply higher as traders started to cover their short position which added fuel to an already oversold market ready to bounce. Overall volume was not that strong on the move up which is a bearish sign. On Friday afternoon we saw the SP500 continue to move into the $1075 resistance level on very light volume. This indicates to me that buyers are not willing to pay these higher prices because the market has moved up so quickly and the fact that it’s trading at a resistance level.
I feel the market will gap higher on Monday just like we say on June 20/21 deep into a resistance level and the big money will short the pop sending it sharply lower.
Gold looks to be shifting its momentum from a down trend to an uptrend. It’s forming a reverse head & shoulders pattern which is shown in the video posted below.
Here is My Technical Trading Report Video Covering:
- Gold, US Dollar, SP500, Market Internals, On Balance Volume
In short is looks as thought the market is at a critical pivot point. We could see prices stall out here and continue the down trend or see strong buying step in sending prices higher in the equities market. We need to wait and see what type of price action unfolds in the coming days.
It’s been a short but exciting week so far. Investors and traders are have been scratching their heads the past few days as stocks continued to bounce around giving mixed signals. But today was a clear day of short covering from this much oversold market condition.
Below are a few charts showing what I’m currently thinking will unfold in the near future.
Gold Futures Trading – 2 Hour Chart
In the past couple weeks we sold our position in gold at $1255-60 area in anticipation for this sharp drop. The market was kind enough to show us though its price and volume action that a nasty drop was just around the corner. Currently we are in cash waiting for the down trend momentum to stall and reverse before taking another long position in gold. I feel it could still drop one more time, but the chart is giving mixed signals when reviewing the short term charts.
Crude Oil Futures – Daily Trading Chart
Crude has seen a shift in the trend over the past 2-3 months. Selling volume over took the buyers and are now pulling prices down into bear flag pattern which means lower prices still.
SP500 Futures – 60 Minute Trading Chart
SP500 and other major indexes have been selling down the past couple weeks. Tuesday we saw the market gap up very big then sell off. But that surge higher was an early warning sign that the selling momentum was slowing for the time being.
1075 on the SP500 is a key resistance level and a point which many traders will be taking profits and trying to short the market. That will create a lot of selling pressure at that level and only time will tell if we can clear it.
Mid-Week Commodity and Index Trading Conclusion:
It looks as though we are getting the over due bounce in the stock market everyone has been anticipating. The large rally today (Wednesday) has covered most of the ground as it has moved up over 3% today. Overhead resistance looks to be only 2% away before sellers step back in and try to pull the market back down.
If the market goes up for another couple days then gold should have a small pullback to test support. When the equities market starts to drop again money should flow back into gold and send it higher as the safe haven of choice.
Crude oil broke down late last week and this week it bounced back up to retest the breakdown level. This is common and once complete oil should continue to drop.
The market is still in a strong down trend on an intermediate basis so be sure to lock in profits once your investments reach key resistance levels. If you don’t the market has a way of taking back those gains very quickly in the current market condition.
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