Were The Stress Tests For Real? Volume Says Otherwise

By: Jeb Handwerger | Sun, Jul 25, 2010
Print Email

As investors debate the validity of the stress test to gauge the financial health of European banks, the market has definitely signaled clues on the charts that we are nowhere out of the woods yet with the sovereign debt issue. Since the European Crisis began at the end of April, the news out of Europe has rattled the markets on high volume sell offs, break of trends and moving averages. It is interesting that now, with the stress test showing positive, investors are hesitant to jump back in. This is indicating there are still other major concerns and that many of us don't have faith in the stress test or published government reports.

One lesson I've learned as a trader is that if you don't know what the trend is, don't make a guess. Even a four year old child who looks at a price chart on gold can spot the uptrend. However, in the case of the major market indices- where you have a declining 5o day moving average below the 200 day moving average, and when you are seeing poor price volume action- it is best to be cautious. There can be impressive rallies before a bear market begins. The Dow Jones Industrial Average is overbought and has crossed the 200 day moving average on light volume. This has come after major bouts of selling from institutions including the infamous "flash crash in May."

Dow Jones Industrial Average

The way I measure how excited a market is through volume. A break above key support or resistance on low volume indicates that the move was not convincing and should send warning signs as a "fakeout". This market is indicating that the moves higher are basically due to a lack of sellers and any further news items which may be negative will bring the bears back out.

Housing is an area which is seeing very little demand right now. This is the industry which initiated the financial crisis we are in and it should be showing signs of strength in an economic recovery. Much of the rise in housing was the result of government intervention in the form of tax breaks offered to buyers. The rise in treasury prices and the weakness in housing indicates that many people are not borrowing.

S&P Homebuilders Index

Although housing appears to have a double bottom, I am a bit suspect of the lack of volume. It would be premature of me to call a buy signal on housing, especially since it has not tested the 50 day moving average as resistance after the bearish death cross of the 5o day crossing the 200 day. Housing needs to turn positive before any real rally can begin. Right now housing stocks are still bearish and a convincing break above the indices would change my mind, but the probabilities of that occurring with these overbought conditions and lack of volume are low.

There was a report this week about executives of bailed out banks who were paid $1.6 billion dollars of taxpayers money. As investors realize the staggering debt and the stagnant economy we are facing because of high taxes and increasing government intervention into the private sector, there will be major move away from cash and towards gold and silver. At that point gold and silver could move significantly higher. I believe that time may be closer than many sources would have you believe.

To summarize, some indexes have broken the moving averages to the upside but on low volume, as I have shown in the first chart. To me, this indicates that smart money is staying on the sidelines until the trends are more observable. Right now, my bias is that this rally is a fake-out and I will not become bullish again until I see a break above 10,600 on the Dow as well as a bullish golden crossover of the 50 day crossing the 200 day moving average to the upside. Volume is a crucial part of this equation. If there is some major accumulation coming coupled with the 50 day moving average sloping higher, then I will reconsider my position. However, at the moment I am still bearish on the markets and am bullish on silver and gold.

For timely updates subscribe to my free newsletter at http://goldstocktrades.com.

 

Disclosure: Long Silver Gold Mining Stocks

 


 

Jeb Handwerger

Author: Jeb Handwerger

Jeb Handwerger
http://goldstocktrades.com

Jeb Handwerger

I started reading charts at eleven years old. One day my father, a market trader and technician found his library of books on technical analysis mysteriously disappearing. He later found the textbooks under my bed. For many years day and night I studied technical analysis and charting, working and learning from my father who has over 50 years of trading experience. Technical analysis is my passion and love.

In 2001, I started noticing the junior mining stocks and gold as having a tremendous upside. For the past 9 years I have researched many juniors and have identified the major winners using technical analysis and finding top management.

I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned most of my technical analysis from the school of hard knocks, managing real money for myself and for my family.

Constantly perfecting my craft, I have traded for two decades of success in many different markets. I have been asked to post ideas to some of my students who have taken my course in charting and technical analysis. I have made an excellent living trading stocks for myself.

We are offering ideas for your consideration and education. We are not offering financial advice. None of our content is provided to invite or encourage any person to make any kind of investment decision. We are not financial advisors. We advise you to consult with a professional financial and investment advisor before relying on any content.

We are sharing our ideas for educational and informational purposes only. You must do your own due diligence and are responsible for your own investments.

Companies that are followed in our premium service may become sponsors on Gold Stock Trades and/or our free or affiliate websites to distribute press releases or corporate updates for a monthly fee on our free website. From time to time, Gold Stock Trades and its directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise. Please see our list of current sponsors and featured companies for any potential conflicts of interest.

Some information in our content can be construed as forward-looking statements. Forward looking statements are uncertain and actual results may differ from our expectations. We seek safe harbor.

By reading this disclaimer you will not hold responsible any person associated with http://goldstocktrades.com responsible for any losses that may occur from trading based on this information. If you do not agree with the terms of our disclaimer, do not access our website or content, and unsubscribe if you are already a member.

Sign up for my free newsletter where I will post my "up to the minute" ideas and analysis of the markets. Comment and ask questions as we are all learning and growing. Empower yourself and learn how to anticipate opportunities.

All material on my newsletter and blog is copyrighted.

Please contact us here with any questions, comments or interviews.

Copyright © 2010-2014 Jeb Handwerger

 

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/