The equities market reversed to the upside Wednesday posting a light volume broad based rally. Remember light volume tends to have a neutral to upward bias on stocks, But it was mainly the sharp drop in the dollar which spurred stocks and commodities higher.
Today’s bounce was not much of a surprise for several reasons…
- Overall trend is up, one day sell offs are generally profit taking
- Panic selling on the NYSE tipped us off that the market was oversold
- I don’t think they will let the market fall before the November election
- Intermediate cycle is turning up this week, 3 weeks of upward momentum…
US Dollar Index – 4 Hour Chart
The dollar put in a big bounce this week filling its gap window… Remember most gaps get filled with virtually every investment vehicle so when you see them remember this chart….
SPY ETF – Daily Chart
SP500 has been riding the key moving average up and Tuesday’s sell off tagged the 14MA along with extreme market internal readings telling intraday traders that a bounce is about to take place.
Gold Futures – Daily Chart
You can see gold has done much the same… A sharp profit/stop running sell off, which took the price back down to support. We took a long position to catch this bounce and hopefully a larger move going forward.
Market Sentiment Readings
Tuesday’s pullback was a great reminder of just how over extended the equities market was. These heavy volume sell offs are typical in a bull market. Without regular pauses in price, traders tend to place trailing stops moving them up each day. With traders chasing stocks higher bidding them up instead of waiting for a pullback we get a very large number to stop orders following the price up each day. Then, it’s only a matter of time before a key short term support level is broken at which point the flood gates open and everyone’s stops turn to market orders flooding the stock exchanges with sell orders causing a rapid decline and panic selling. This is exactly what happened on Tuesday which I show in the chart below.
Understanding how to read market internals provides great insight for short term traders looking to make quick high probability trades every week… Market internals are just part of the equation but very powerful on their own with proper money/position management. Both of these intraday extremes were bought on Tuesday in the advanced chatroom (FuturesTradingSignals.com).. We quickly booked profits and moved our stops up in order to protect our capital as the market surged higher.
Mid-Week Market Trend Analysis:
In short, the US Dollar is still in a down trend overall. The Fed’s I would think will continue to hold the market up into the election. It works well for them… they print money which devalues the dollar, and in return boosts stocks and commodities, plus they get trillions of dollars to spend… I’m sure its like kids in a candy store over there.
While everyone is trying to pick a top in this over extended market I think it is crucial to stick with the overall trend and to not fight the Fed. Using the key moving averages on the daily chart as shown in the charts above, continue to buy on dips until the market closes below the 20 day moving average at which point you should abandon ship.
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David Banister- www.markettrendforecast.com Oct 13th 2010
Back in late February 2009 I decided enough was enough, and I stuck my neck out and called for a massive bull market in stocks. I based this prediction purely on Elliott Wave patterns I identified as bottoming and the sentiment gauges were off the charts bearish. We had not seen sentiment that negative since the 2002 lows. The re-tracement of the SP 500 over the eight odd years was a textbook Elliott Wave pattern, and frankly I think I was the only person who noticed the significance of the 666 low as it related to the 1974 SP 500 lows to 1999/2000 highs. Why was that 666 number so significant and a key indicator of a major bear market cycle low? Well the reason is that marked a clear wave 2 elliott wave bottom both in price, and sentiment, and time all at once.
At that level, the SP 500 believe it or not, had retraced an exact 61.8% Fibonacci retracement of the 1974 lows to the 1999 highs. That was very significant in that the market bottomed right there, and then began rallying upwards. At that point, it confirmed what I predicted in February of 2009, that we would begin a massive bull market up in stocks. The correction from the 1999-2000 highs lasted about 8 fibonacci years roughly, and retraced 61% (Fibonacci golden ratio) of the 25 year advance. Everyone was bearish at the lows, again, a confirming piece of evidence to get long in the winter of 2009. That brings us forward in this new bull market to October, 2010. Clearly, we bottomed in March of 2009 at 666, but it was not random at all.
We are now in the early stages of a big wave 3 up in the markets. Wave 1 ended in April 2010 (A 5 wave structure completes a large wave 1 pattern). Then wave 2 corrected in A B C fashion, which had a 38% fibonacci retracement of the prior 13 month rally. That completed wave 2 down into July 1st, and sentiment again was horrible at the recent 1040 pivot.
Now, a wave 3 structure (5 total waves) to the upside begins at 1010 on July 1st with a move to 1130, then a wave 2 to 1040, and now a wave 3 up still in progress to 1220 if I’m right. Bottom line is the long term trends are bullish until the wave patterns materially change. Once 1220 is hit, we likely get a pullback wave 4 down, then a 5th wave up to new highs past the April 2010 highs.
Below is the simplest of SP 500 charts with some basic Elliott Wave labels. Getting complex with Elliott Wave forecasting is not a good idea: Best to you and your trading!
Subscribers to our TMTF are educated as much as possible by me on Elliott Wave Theory, but everyone who is an investor should consider reading up on the basics of the subject so you have a base understanding. There are many free sources online to Google. Consider joining my TMTF service now and stay ahead of the bull and bear moves in the market, and profit! Go to www.themarkettrendforecast.com to sign up.
Wallace, Idaho – Phelim McAleer, writer, co-director and narrator of the tragi-comical documentary “Mine Your Own Business” pillorying the environmentalist movement’s march against mining, will keynote the Silver Baron’s Banquet dinner Thursday, Oct. 21 at the eighth annual Silver Summit Oct. 21-22 at the Davenport Hotel in Spokane, Washington.
“Mine Your Own Business” exposes how environmentalist NGOs (non-governmental organizations) use their power and influence to impose third-world “quaintness” on regions whose residents would prefer to see the promise of prosperity of first-world mining jobs. McAleer’s work prompted the Wall Street Journal Online to comment: “Move over, Michael Moore. You have competition in the art of political film-making…[but] instead of advancing the cause of smug liberal hypocrisy, he’s debunking it.”
The centerpiece of “Mine Your Own Business” is a proposal by a Canadian firm to rehabilitate and return to production the Rosia Montana gold mine in Transylvania, Romania. Rosia Montana had produced gold since Roman times, but under Soviet rule, was turned into one of Eastern Europe’s biggest polluters. Since the mine’s post-Soviet closure, unemployment in the area rose to 80 per cent. Gabriel Resources says it can return the mine to productivity while at the same time cleaning up the Soviet-era mess and eliminating pollution from future operations.
In the film, McAleer interviews villagers who want the mine and the jobs it will bring, who say they’d prefer driving their own automobiles to riding on donkeys, juxtaposing their views with those of non-resident environmentalists who don’t want the villagers’ lifestyle changed for the better. One NGO chief who admires the Third World’s quaintness is interviewed in front of his sailing yacht. The documentary reveals the exaggeration and misrepresentations that are behind many NGO campaigns. It also reveals how many environmentalists mistake poverty for an idyllic way of life that they believe needs to be preserved.
Some environmentalists have compared “Mine Your Own Business” to pornography and Nazi propaganda and McAleer and his wife and co-producer, Ann McElhinney have received two death threats from environmentalists because of the content of the documentary.
Some 80 environmentalist NGOs have sought to have Mine Your Own Business banned when it was due to be screened in Washington and McAleer was physically assaulted by environmentalists during the recent Copenhagen climate talks. The left-wing UK Guardian newspaper described “Mine Your Own Business” as a “a Michael Moore-style documentary…cast(ing) the green movement as the influential villain of a worldwide campaign to block development and deny people the chance of jobs and a decent life.” Newsweek says that the film has produced “quotes, observations and footage that cast environmental groups in a decidedly unflattering light.”
Most recently McAleer was the Producer/Director of “Not Evil, Just Wrong,” a documentary that challenges global warming alarmism and highlights the effect such alarmism will have on jobs and those who need industry in the developing world. In response McAleer’s microphone was cut off during a press conference when he asked Al Gore “an inconvenient question.”
Before “Mine Your Own Business,” McAleer was a second unit director, Associate Producer and researcher on the documentary “Return to Sender” which aired on Canada’s CBC in February 2005. From 2000 to 2003 he was the Romania/Bulgaria Correspondent for the Financial Times. McAleer has also written for The Economist from the region. Previously from 1998 to 2000, he worked for the UK Sunday Times in their Dublin office.
McAleer started his career as a journalist working for the Crossmaglen Examiner, a local Northern Ireland newspaper in Co. Armagh. The newspaper covered stories in the area, which was known as “Bandit Country” because of the ferocity of the IRA campaign in the area. McAleer then moved to the Irish News in Belfast, Northern Ireland’s largest selling daily newspaper, where he covered the Northern Ireland troubles and peace process.
Sponsors of McAleer’s appearance include Mr. Robert Hopper, president, Bunker Hill Mining Co., and Mr. Tom Parker, president, U.S. Silver Corporation.
“As the Coeur d’Alene Mining District of northern Idaho hunkers down against the U.S. EPA’s 90-year campaign to preclude future mining activities in our region and keep us in quaint poverty, it’s appropriate that Mr. McAleer and his films become known to our audience of 1,200 silver and gold investors – most of whom are invested in districts around the world that the environmentalist NGOs have targeted,” said Silver Summit Director Shauna Hillman.
Registration for Silver Summit 2010 may be accomplished at silversummit.com, or by telephoning the Silver Summit office during business hours Pacific time, +1.208.556.1621. Those wishing to reserve tickets to the Silver Baron’s Banquet should arrange for same by calling the Silver Summit office.
Wednesday the market didn’t tell us anything new. The equities market is still over extended on the daily chart but the market is refusing to break down. Each time there has been seen selling in the market over the past two weeks, the market recovers. Equities and the dollar have been trading with an inverse relationship and it seems to drop every in value each selling pressure enters the market, which naturally lifts stocks.
That being said, sellers are starting to come into the market at these elevated levels and it’s just a matter of time before we see a healthy pullback/correction. The past 10 session volatility has been creeping up as equities try to sell off. There will be a point when a falling dollar is not bullish for stocks but until then it looks like printing of money will continue devaluing of the dollar to help lift the stock market. Some type of pullback is needed if this trend is to continue and the markets can only be held up for so long.
Below is a chart of the USO oil fund and the SPY index fund. Crude has a tendency to provide an early warning sign for the strength of the economy. As you can see from the April top, oil started to decline well before the equities market did. This indicated a slow down was coming.
The recent equities rally which started in late August has been strong. But take a look at the price of oil. It has traded very flat during that time indicating the economy has not really picked up, nor does it indicate any growth in the coming months. This rally just may be coming to an end shortly.
This daily chart of the SP500 fund shows similar topping patterns. This looks to be the last straw for the SP500. Most tops occur with a gap higher or early morning rally reaching new highs, only to see a sharp sell off by the end of the session which generates a reversal day. From the looks of this chart that could happen any day.
In short, volume overall in the market remains light which is why we continue to see higher prices. Light volume typically gives the stock market a positive bias while Sell offs require strong volume to move lower. That being said every dip in the equities market which has been close to a breakdown seems to get lifted back up by a falling dollar, but that can only happen for so long because one the volume steps back into the market the masses will be in control again.
You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more info across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward. Due to more analysis the price of the service will be going up Oct 1st, so join today.
Let the volatility and volume return!