Technical Patterns In S and P500 and Gold
The rise in equities from March 2009 to April 2010 lacked one key ingredient in a bull market: volume confirmation. There were many technicians who pontificated why the lack of enthusiasm of the uptrend existed. Some said that it was the 2008 de-leveraging of hedge funds that caused the decreased participation. I was never convinced of this far fetched argument because on each correction volume increased significantly. I've been skeptical of the claim that this time will be different. While studying charts over the years, one indicator I am always loyal to is volume. It is the enthusiasm in a market which shows if a rally or decline is convincing.
The H&S pattern is one of the most reliable chart patterns. The S&P 500 is showing an apparent head and shoulders top with volume confirmation. One way of affirming the validity of this formation is by checking the volume on the right shoulder, because the right shoulder is the first rally in the bear market. The low volume shows a lack of confidence in the previous bullish trend.
The sharp breakdown of the S&P 500 following after the rising wedge pattern tells me that this bear market is likely to continue. Several indicators, namely the bearish death cross, break in trends and poor price volume along with the bearish head and shoulders pattern and rising wedge all combine to weigh heavily against equities.
GLD is experiencing a "v" formation after coming to long term support and a 50% fibonacci retracement. On July 28th, many of you have read my views and why I believe gold was at a buypoint, contradicting the consensus of market timers at the time. Now I believe gold is in need of much needed respite in the trend and a shakeout before continuing into new highs. Gold buying has also gotten some TV airtime from a few famous commentators who are now turning bullish on the metal. That really concerns me, as it is a contrary indicator. We may see a healthy correction so that GLD can clear the previous resistance and make a move into new highs. A healthy correction could also provide an excellent market entry point for a trader who wants to add to their gold holdings before a new breakout. If you study the move into new highs from September of 2009 you will see the coil formation where it had three pullbacks to support. These formations are bullish as they provide the conditions to generate a high percentage move. For specific stock selection visit my website at http://goldstocktrades.com.
GLD is overbought and if you are trading short term, do expect a pullback to at least the 50 day moving average to find support or possibly shakeout the traders who bought in after it crossed the 50 day moving average.
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Author: Jeb Handwerger
Jeb Handwerger
http://goldstocktrades.com
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.
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I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence. I am not an investment adviser. I invest my own money in the stocks I suggest. I am an investor communicating my opinion of the markets with other investors. I will be straight-forward and honest.
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