Where the Dow, Gold, Silver and Oil Stand
Broad Market Trading Analysis
Last week the broad market slide lower on heavy volume as the DOW tries to
hold the 8000 level. If this support level is broken then we could see another
leg lower with the DOW sliding down to the 6500 level.
The reason I am mentioning this is because gold surged higher on Friday with big volume as traders start to anticipate this drop as well as the drop in the USD which is currently at a short term resistance level. If the market starts to drop, then holding gold stocks may not be the best safe haven. When the market sells off it tends to pull all stocks with it, by holding GLD fund or physical gold, SLV fund or physical silver, and the USO fund or physical crude oil, you could have better returns on your investment trading the commodity rather than going long stocks in a bear market.
Dow Index 10yr Monthly Chart - Explained
If you look at the monthly chart of the Dow Jones Industrial Average you can
see that both of the previous bear markets back in 1998 and 2003 both bounced
off the 6500 level before starting a new bull market. The Dow is currently
at the 8000 level and looking very weak. I don't forecast prices but technically
the market could break down and reach the 6500 within 1-2 months with our
current level of volatility in the market and continued negative news with
the tarp bailouts not working.
Dow Index (DIA ETF) Monthly Chart
The Daily Chart of the Dow Jones - Explained
The daily chart of the Dow does not look so hot. Last month the Dow slowly
climbed on lighter volume which is a bearish movement. Once the price was
at the top of its short term trading range from the past month, sellers jumped
in forcing stocks lower on increased volume. These are the characteristics
of a bear market and long positions should be protected with stops or hedging
which is what I mentioned a couple weeks ago in my report. Currently the
daily chart is has sold down to support on increased volume and flirting
with another major breakdown. What has me worried is that everyone things
the market has bottomed, and if that's the case then all the buyers are long
and a breakdown will trigger everyone's stops and margin calls will flood
the market sending prices tumbling to new multi year lows.
Dow Daily Trading Chart (DIA ETF)
Dow Trading Conclusion:
The broad market at this levels is very tempting to buy as dividend funds and
stocks are priced to go out of business thus have big potential for the long
term. My concern is that most people seem to think the markets had bottomed
as of a week ago and if that's the case, everyone should be long right now.
If the markets continue this downward slide a few more days we could see
prices drop very quickly as I mentioned above. Either way prices for stocks
are a steal at these prices and still a great deal if the market rallies
another 10-15%. I would rather see the trend flatten more or start to head
higher before I take long term trades to the long side.
Gold Trading Analysis
Spot gold prices soared on Friday as investors move their money into gold which
is generally a safe haven during tough economic times and a US dollar which
could drop sharply within the next 2-3 months.
Spot Gold Weekly Chart - Explained
The weekly gold chart shows a very clear breakout to the up side of its current
downward trend line. This chart looks to be strong its is important to note
that it still has not made a new higher high, and is now trading at resistance
of the previous short term top put in place last November. Gold could just
as easily drop from here as it could rally.
Spot Gold Weekly Trading Chart
Spot Gold Daily Chart - Explained
We did not have a buy signal last week because momentum was very strong to
the down side on the daily chart. I only like to play reversals when we have
momentum in our favor. That being said, momentum is now in our favor and
we will be looking for a pullback for possible entry points now. On the daily
chart the MACD was headed lower with a breakdown which is the main reason
I was not willing to put our hard earned money to work. I do miss some nice
moves if our funds but I make sure the odds will be in our favor before pulling
the trigger.
Spot Gold Daily Chart (GLD ETF)
Silver Trading Analysis
Silver had the same things happening to it as gold did last week. MACD (momentum)
was down and its risk was over 3%. We are now looking for entry points during
a pullback.
Spot Silver Weekly Trading Chart (SLV ETF)
Gold and Silver Trading Conclusion:
Gold and silver look like they have started a move higher as traders and investors
put their money into something tangible which is a hedge against a falling
dollar. I think these metals will perform much better than the gold and silver
equities if the market does drop from here. That being said, if I get a buy
signal for the equity funds I will take a position in them for sure. Waiting
for a low risk trade with the odds in your favor is difficult but crucial
if you want to succeed in the long term.
Crude Oil Trading Analysis
Crude Oil is something that I think has huge potential because of its prolonged
down trend without any real bounces and because there is so much interest
from traders and investors who want to catch this bounce. The weekly chart
is starting to look amazing and the daily chart looks ready to pop as well.
Crude Oil Weekly Trading Signal - Explained
The weekly oil trading chart shows a long 7 month sell off without any small
bounces on the way down and volume has increased as the price slides lower
indicating that there is more and more interest from traders and investors.
Prices have now put in a small bounce and will be testing our downward trend
line if price continue to rally this week. Also the MACD (momentum) is about
to cross to the upside which is very bullish. If oil prices breakout above
our down trend line and the MACD crosses over to the upside then we will
have a buy signal in oil.
Weekly Crude Oil Trading Chart with Possible Oil Buy Signal
Crude Oil Daily Trading Chart - Explained
Crude Oil's daily chart is very bullish looking as well. The price has broken
is downward trend line and has pulled back to a support level over the past
2 weeks. Fridays big bounce gave us a buy signal for USO because everything
for my oil trading strategy was in favor (MACD cross, Stochastic, Trend line
Break). The only issue was that risk was over 3%, it is currently at 9% and
I will wait for a better entry point on a small correction.
Crude Oil Daily Trading Chart with Oil Buy Signal
Crude Oil Trading Conclusion:
Crude oil as you can see looks to be a picture perfect setup as momentum in
the price is slowly shifting direction. While many traders went long on Fridays
buy signal I am waiting for risk to decrease before I put my money to work.
I don't mind buying things at a higher price if the overall risk is lower
and the reversal looks strong.
Please visit my website if you would like to receive my free weekly trading reports or real time trading signals visit: www.TheGoldAndOilGuy.com.
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Author: Chris Vermeulen
Chris Vermeulen
TheGoldAndOilGuy.com
Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. For 6 years Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return. Reach Chris at: Chris@theGoildAndOilGuy.com
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
Copyright 2008-2013 © Chris Vermeulen
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