Gold, Silver, Oil and SP500 Are Popping and Dropping?

By: Chris Vermeulen | Thu, Sep 16, 2010
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We are at the tail of another light volume choppy options expiry week and a big move is brewing... So I thought I would do a mid-week update on what I think is about to unfold in the coming days.

First off I will touch on gold. Everyone is in love with this shiny metal. But as I mentioned last week I think we are nearing a sharp correction. Previously I pointed out that we needed gold to make a new high to the $1275- 1285 area before everyone piles in and gets married to it, only then will the market reverse... Remember the market is out to take money from the masses and the gold trade is getting a little crowded in my opinion.

There are fundamentals which can be taken into account... but when has any investment moved perfectly inline with the underlying fundaments? I've seen investments lead fundaments by years, and other times lag the fundamentals by years, not to mention manipulation... but that's a whole different subject. That being said I don't hold gold long term for the simple reason I don't believe much in the buy and hold strategy, nor do I like to watch investments go much more than a few percent against me... I would rather sit in cash jumping in and out when things look ripe for the picking.

Ok let's jump into the analysis...


Gold Futures Price - Daily Chart

As you can see gold is forming another rising bearish wedge. The last one lead to a $100 drop in gold earlier this year. The part that I find exciting is that this recent run up has been on relatively light volume and without any decent pullbacks along the way. What does that mean? It means fewer people are willing to pay top dollar for it and the big money is riding this train up until they feel its getting exhausted then they will start unloading large amounts at a premium. We also just saw another new high on Thursday which happened on light volume tells me this rally just may have the herd all rounded up before the slaughter.

Gold


Silver Futures Price - 15 Minute Intraday Chart

While I don't trade silver as much as gold due to the added volatility/whipsaw action, this intraday chart is starting to show signs of weakness with a rising bearish wedge today. This is just an intraday chart but these short term patterns tend to lead the longer term charts pointing out exhaustion is starting to creep into the market. Both gold and silver could still have a blow off top and shot up, which is why I have been saying to stay long metals (if you have a position) and to keep raising stop as it could continue higher for some time if a new wave of buyers step in.

Silver


Crude Oil - 4 Hour Chart

Oil has been choppy recently making it difficult to get a good read off the chart. Currently it is testing support and looks to be forming a possible right shoulder. It could have some good potential to the down side if we get a neckline break. I'm keeping my eye on it for another low risk entry point.

Light Crude


SP500 ETF - Daily Chart

This chart clearly shows some extreme bullish sentiment levels in the market. The bottom indicator is the total put/call ratio and when it is below 0.80 in an environment like this, it means there are too many people bullish on the market. So with todays spike low its easy to tell that the majority of traders/investors are bullish as they buy all the call options they can.

That being said, we generally get a serious shake out before the market reverses. What I mean by that, we should see the market gap substantially higher or spike up intraday as key resistance is broken. This forces all the shorts to cover their positions just before the market rolls over and sells back down. That's what I am looking for to take action.

S&P500 and Put/Call Ratio


Mid-Week Trading Conclusion:

In short, gold and silver are looking and feeling toppy here. While I am bullish on them long term, we could see sharp pullback which could take months to regain these prices. I am not short metals yet but very close to taking a short counter trend trade.

Oil continues to looks bearish but is taking a long time to play out. This is a 4 hour chart and if we do get this neckline breakdown, it would still take 1-2 months to pay off. That being said, it looks like it will go lower.

SP500, I think the chart gets the point across. The important part to know is that it should go another 0.5% - 2% higher before it goes lower as that would make for a perfect pop & drop reversal pattern which I will alert members to when the time comes to short.

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 2-4 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 per customer's request, 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.

Let the volatility and volume return!

 


 

Chris Vermeulen

Author: Chris Vermeulen

Chris Vermeulen
President of AlgoTrades Systems
www.TheGoldAndOilGuy.com

10126 Hwy 126 East, RR#2
Collingwood, ON, L9Y 3Z1

Chris Vermeulen

Chris Vermeulen, founder of AlgoTrades Systems., is an internationally recognized market technical analyst and trader. Involved in the markets since 1997.

Chris' mission is to help his clients boost their investment performance while reducing market exposure and portfolio volatility.

Chris is also the founder of TheGoldAndOilGuy.com, a financial education and investment newsletter service. Chris is responsible for market research and trade alerts for of its newsletter publication.

Through years of research, trading and helping thousands of individual investors around the world. He designed an automated algorithmic trading system for the S&P 500 index which solves his client's biggest problem related to investing in the stock market: the ability to profit in both a rising and falling market.

AlgoTrades' automated trading systems allows individuals to investing using either exchange traded funds or the ES mini futures contracts. It is supported by many leading brokerage firms including:

- Interactive Brokers
- Trade MONSTER
- MB Trading
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- The Fox Group
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He is the author of the popular book "Technical Trading Mastery - 7 Steps To Win With Logic." He has also been featured on the cover of AmalgaTrader Magazine, Futures Magazine, Gold-Eagle, Safe Haven,The Street, Kitco, Financial Sense, Dick Davis Investment Digest and dozens of other financial websites. His list of personal and professional relationships approaches 25,000, people with whom he connects and shares is market insight with out of his passion for trading.

Chris is a graduate of Seneca College where he specialized in business operations management.

Chris enjoys boating, kiteboarding, mountain biking, fishing and has his ultralight pilots license. He resides in the Toronto area with his wife Kristen and two children.

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