Holiday Short Squeeze and Oil Trade Idea

By: Chris Vermeulen | Fri, Dec 23, 2011
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Typically, the week before Christmas, stocks and commodities drift higher due to the lack of participants. Light volume favours higher prices, which is why stocks want to rise going into the holiday season.

The big money players, like hedge fund managers, are finished for the year. They're sitting on the sidelines enjoying the holiday season while waiting for their year-end bonus checks.

Let's take a quick look at how the week finished...

Friday was an interesting session as stocks and oil reached some key resistance levels. Below are my thoughts, charts, and a possible trade idea for next week.


Gold & Silver Thoughts:

Looking at the long term charts of gold and silver, I feel they could head much lower in the first quarter of 2012. The inverse relationship between the dollar index and gold makes me think this is a high probability scenario.

The weekly dollar index chart remains strong at this point and could start another very strong rally any day. Once the dollar starts heading higher, expect precious metals to move down along with equities.


SP500, Dollar and Volatility Index

Below are three charts stacked on top of each other. They are marked with my analysis and thoughts for next week. Personally, I don't feel shorting stocks is a safe play. The last week of the year, we can see the volatility index (VIX), and the dollar, rise without putting pressure on stocks. So be aware of that.


TRADE IDEA - View Chart:

Crude oil looks like a great low risk opportunity (a real "Christmas" present!) from Mr. Market. SCO would be the ETF for US based traders. HOD, which is listed on the TSX, is good for Canadians. I favour this setup because I don't feel that oil will be as affected from the holiday bulge as will American equities.


Pre-Holiday Trading Conclusion:

I was planning on avoiding the market Friday, but the charts were calling my name... The session ended with what looked to be a short squeeze. The remaining short positions didn't get their expected drop in price. Consequently, when the traders all started to cover their shorts (buy) just before the close, it caused a strong surge higher.

I do not recommend shorting stocks next week because of the light volume. However, oil looks good to me.

Just thought I would share my end of the week thoughts, and wish you a Merry Christmas!

Cheers!

 


 

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
- OEC OpenECry
- 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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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
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