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October 12, 2007

Potential Reversal Could Lead to Huge Buying Opportunity
by Michael Swanson

Yesterday we saw a potential reversal in the market. The Nasdaq rallied up over 20 points and then closed down almost 40 points. When you see a market breakout to new 52-week highs after going up for weeks and making a big move to the upside during the day only to close deep in the close you have a potential reversal. At the same time the XAU traded all of the way up to 182 and dropped almost 10 points. It then bounced into the close to finish the day at 176.67. The markets have been rallying since the August bottom without any pullback of any significance. At the same time Investor Sentiment has gotten extremely bullish, with the number of people calling themselves bulls in the Investors Intelligence Survey over 60%. This has gotten a bit larger at times, but is the level we saw at the July top.

The markets are in a position in which they will either continue to rally and have a wild parabolic melt up or are going to pullback down and digest their recent gains, thereby paving the way for another more healthy move up.

If we do get a pullback it will be a great buying opportunity for gold stocks. I bought and sold some gold positions over the past week(notifying WSW Power Investor members of the timing of these trades), but if we see gold stocks pullback from here I will be able to buy and hold.

The XAU has support at 173, the point of its breakout and resistance level that has held it in place over the past month. After that support is at 1685.56, the point of its 20-day moving average and then down to the the 159.20-160 area, the 1/3 retracement level of the August low and October 182 high. If yesterday's action was an important reversal then the XAU could easily pullback down to the 160 area. By the time it got there the 50 day moving average would also be near this point. In past bull runs the 20 and 50-day moving averages have been key areas of support. Also a move down to 160 would be an 11% correction that I have mentioned as normally occurring after the XAU first breaks above its 200-day bollinger band at the start of a new bull run. I had thought we would see a correction like this off of the 173 area, but it may be that the XAU decided to move higher up to 182 before having this 11% correction.

The bottom line is if the XAU closes below 173 over the next few days we can expect continued selling that will take it below 170. We would then have to look for signs of a bottom to buy at the 168 or 160 area.

If we drop down to these levels and bottom I expect a huge rally to take place like we saw from August to this recent peak that will take it beyond the 200 level.

Yesterday Dave Skarica and I published a podcast after the close in which we discussed the market action. You can listen to it by clicking here. In the podcast we discussed yesterday's market action in greater detail. To subscribe to Dave's Addicted to Profits go to this link.

You can listen to future podcasts as soon as they are recorded, instead of 24 to 48 hours later when I post them on the website, by subscribing directly to the podcast's RSS feed by clicking here.

An RSS subscription allows you to receive the podcast through your Ipod or RSS feed reader. I'd like to encourage you to subscribe to the podcast because the more subscriptions to the RSS feed we have, the higher the podcast will be ranked in feed directories, thereby attracting more listeners to the program. We pay the costs for this podcast which keeps it free for you, so your subscription to the podcast would be a great way to help us out. And if you use podcast directories yourself, please don't hesitate to recommend us.

WSW Podcast: Manic Market - Special Guest Dave Skarica.

Michael Swanson,
WallStreetWindow.com

Disclaimer: Michael Swanson is the President of USA Capital, Inc., which provides management, support, and research for institutional investors, hedge funds, and mutual funds. The ChartWizard is also an employee of USA, Capital, Inc. Both Swanson and employees and associates of USA Capital, Inc. may have a position in securities which they mention on WallStreetWindow or any of its services. In such cases, appropriate disclosure is made. Under no circumstances should the information received from WallStreetWindow represent a recommendation to buy, sell, or hold any security. WallStreetWindow contains the opinions of Swanson and the ChartWizard and is provided for informational purposes only. Neither Swanson, the ChartWizard, nor TimingWallstreet, Inc., which owns WallStreetWindow, provide individual investment advice and will not advise you personally concerning the nature, potential, value, or of any particular stock or investment strategy. To the extent that any of the information contained on WallSteetWindow may be deemed investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Past results of WallStreetWindow, the ChartWizard, or Michael Swanson are not necessarily indicative of future performance.

WallStreetWindow does not represent the accuracy nor does it warranty the accuracy, completeness or timeliness of the statements made on its web site or in its email alerts. The information provided should therefore be used as a basis for continued, independent research into a security referenced on WallStreetWindow so that the Subscriber forms his or her own opinion regarding any investment in a security mentioned by WallStreetWindow. The Subscriber therefore agrees that he or she alone bears complete responsibility for their own investment research and decisions. We are not and do not represent ourselves to be a registered investment adviser or advisory firm or company. You should consult a qualified financial advisor or stock broker before making any investment decision and to help you evaluate any information you may receive from WallStreetWindow.

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Copyright © 2004-2008 Michael Swanson

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