S&P 500 Composite Closing Price Fell Below 7-Week Lows by Robert W. Colby

Summary: S&P 500 Composite (SPX, 1,047.22) closing price fell below 7-week lows. Energy stock sector Relative Strength Ratio (XLE/SPY) has been bearish since peaking on 7/1/08 and fell below 8-week lows on 8/26/10. Financial stock sector Relative Strength Ratio (XLF/SPY) fell to a new 9-month…

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Last week was exciting as investments rocketed higher or tank… We saw Gold and the US Dollar pop while oil and equities dropped sharply with heavy volume.

Just to recap, Wednesday the market went into free-fall mode sending traders and investors running for the door. This was obvious from looking at the large percent drop coupled with heavy selling. That day the NYSE showed panic selling with 37 shares sold for every 1 share purchased meaning pure panic. In my Wednesday night report “How to Take Advantage of Panic Selling for SP500 and Gold ” I explained how to read these extreme market conditions and what to expect the following sessions.

Currently the price of gold, oil, spx are trading somewhat at the opposite extremes seen last week. Below are a few charts explaining the situations:

GLD – Gold ETF Trading Signals

This 60 minute chart shows gold getting hit hard on Wednesday morning. Investors and traders around the globe were closing out positions and moving to cash. This high volume dumping of positions pulled virtually all investments lower and was the first tip-off that the market was in panic mode.

One the dust settled and investor’s regrouped we saw money surge back into gold creating a nice pop the following day. Problem I see is that gold is now trading at a key resistance level when reviewing the daily chart. And if you take a look at the 60 minute chart below you can see the price of gold sold down in the morning on August 13th and drifted up into the close on Friday forming a bearish wedge. Also there was some very strong selling just before the market closed which is also a concern.

USO – Oil Traded Fund

Both times oil has fallen we have seen the price pierce key support levels where the bulls would have the majority of their stops placed. The intraday pierce causes the stops to be triggered washing the market of long positions while the smart money loads up accumulating everyone’s sell orders . This is something which happens with virtually every type of investment and the main reason traders get shaken out just before the market goes in their direction. Anyways, running of the stops is something I will cover in a future report.

Looking at the chart below you can see oil trading at trendline support. Each time the key support levels (blue arrows) have been pierced the market has rocketed higher. Just from looking at the chart from August 9th forward you can see that this move down is overextended and visually looks ready for a pause or bounce in the coming days.

*Trading Tidbit - When trading trendlines it is important to try and play the third test. Reason being is that the first two pullbacks create the trendline and the third test is when active traders generally jump on board causing a sizable bounce. Each test of a trendline it becomes weaker and the probability of a breakdown is more likely.*

SPY – SP500 ETF Trading Fund

The SP500 chart shows last week’s breakdown on the 5th test of the trendline. The market is oversold here and ready for a bounce which I hope we get this week. My concern is that the downward momentum is to strong and a bounce will be negated.

US Dollar Index

US dollar put in a huge bounce last week after testing is 61.8% Fib retracement level from the 2009 December low. The strong bounce has pushed the dollar up to a key resistance level which happens to be 38.2% Fib retracement level from both the December up trend and the recent sell off. I figure this will hold the dollar down for a few days easing the pressure on oil and equities.

Weekend Gold, Oil, SPX and Dollar Trading Conclusion:

In short, I feel there will be a relief bounce in oil and equities while the dollar and gold will have some profit taking and trade sideways or down at the beginning of the week. After that it looks as though stocks and oil will head lower while the dollar and gold rally.

If you would like to receive my Trading Analysis and Signals Complete with Entry, Targets and Protective Stops please visit my website at: www.TheGoldAndOilGuy.com

Chris Vermeulen

- About the Author: Chris Vermeulen is Founder of the popular trading site http://www.thegoldandoilguy.com. There he shares his highly successful, low-risk trading method. Since 2001 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[at]theGoildAndOilGuy[dot]com Article Source

Stocks Pulled back mid day around 2%, and few think about the fact that they have run 10% since bottom May 5th post Flash Crash.  The Fed news sent a few Global shivers to fan this broad based sell off.  I would look for a normal 5% correction in this move and we should see a few bargain hunters showing up somewhere across the normal retracement levels.

(Reuters) – Stocks dropped more than 2 percent on Wednesday as worse-than-expected Chinese factory data and a weaker outlook from the Federal Reserve added to worries about the economic recovery. The S&P 500 once again fell into negative territory for the year, with the S&P materials index (^GSPM – News) down more than 3 percent and an index of semiconductors (^SOXX – News) tumbling 4.3 percent.

A volatility index was up sharply, suggesting investors see further choppiness in the market. On Tuesday the Federal Reserve downgraded its outlook on the economy, and said it would begin funneling proceeds from maturing mortgage bonds it holds into longer-term government debt to keep borrowing costs low. The Fed’s assessment of the economy highlighted growth worries.

“Maybe the Fed made investors realize the economy is growing at an anemic pace at best,” said Alan Lancz, president, Alan B. Lancz & Associates Inc., an investment advisory firm, based in Toledo, Ohio. The Dow Jones industrial average (DJI:^DJI – News) was down 226.06 points, or 2.12 percent, at 10,418.19. The Standard & Poor’s 500 Index (^SPX – News) was down 28.53 points, or 2.54 percent, at 1,092.53, and was down 2 percent for the year. The Nasdaq Composite Index (Nasdaq:^IXIC – News) was down 65.74 points, or 2.89 percent, at 2,211.43.

China reported a slowdown in factory output, adding to the picture of softening domestic demand painted by other data a day earlier that showed a sharp drop in import growth. Among top decliners was Cisco Systems (NasdaqGS:CSCO – News), which is due to report earnings after the bell. The stock was down 2.8 percent to $23.64.

For more information visit http://www.worldmarketmedia.com/779/section.aspx/2221/post/market-slumps-into-mid-week

- About the Author: WorldMarketMedia.com (The Global Online Investment Community) is a high traffic stock market, news data website providing cutting edge new media products and services to publicly traded companies worldwide. Our Editor’s Desk authors insightful real-time coverage on the economy, the capital markets and their listed companies. Article Source

Stock Indications Suggest Minor Downtrend for Short-Term by Robert W. Colby

Summary: stock indications suggest a minor downtrend for the short-term, at least, but damages may prove to be limited. S&P 500 Composite (SPX) fell below 5-day lows on 7/16/10, indicating a minor downtrend for the short-tem, at least. SPX fell below its 50-day SMA, remains below its 200-day … Day Trader: Click here to read the full commentary …More »

Reacceleration by Robert W. Colby

Summary: reacceleration. S&P 500 Composite (SPX) rose 1.54% to 1,095.34 on 7/13/10, for its sixth consecutive daily gain, its first such winning streak since April. SPX penetrated resistance at 1,085.27, the Fibonacci 61.8% of June-July 2010 range, and is challenging its 50-day SMA now at 1,0… Day Trader:  Click here to Read More »

Reacceleration by Robert W. Colby

Summary: reacceleration. S&P 500 Composite (SPX) rose 1.54% to 1,095.34 on 7/13/10, for its sixth consecutive daily gain, its first such winning streak since April. SPX penetrated resistance at 1,085.27, the Fibonacci 61.8% of June-July 2010 range, and is challenging its 50-day SMA now at 1,0… Day Trader:  Click here to Read More »

A Significant Change in Market Behavior? by Robert W. Colby

Summary: a significant change in market behavior? S&P 500 Composite (SPX) rose 0.72% to 1,077.96 on 7/9/10, for its fourth consecutive daily gain, its first such winning streak since April. That accomplishment may highlight a significant change in market behavior. Short-term price momentum os… Day Trader: More »

Never Short a Dull Market by Robert W. Colby

Summary: Never Short a Dull Market. S&P 500 Composite (SPX) consolidated with a narrow range Inside Day and very low trading volume on 6/28/10. The SPX is oversold, losing downside momentum, and sentiment has turned bearish. Price momentum oscillators show bullish divergences. NASDAQ Composit… More »

Volatility is usually followed by a departure from fundamentals and eventually technical patterns take over.  This happens more and more when markets recover from sharp sell-offs.  This is a phenomena which occurs counter the existing trend, meaning that if the trend is down- then the rally has technical underpinnings.  We are seeing exactly this in todays action.

“Technicals matter in this market,” Pimco co-CEO Mohamed El-Erian, underscoring and perhaps understating just how much statistical measures of market behavior influence trading.

In particular, analysts have been watching support tests on the Standard & Poor’s 500 (INDEX: .spx) around the 1040 level and top-side resistance near 1110 as an important gage for whether the market can stay out of the recently breached correction territory and resume the aggressive bull-market run that preceded it.

“Since your valuations look good, people become more focused on technicals because now they’re looking for another measure to gage their risk,” says Mike O’Rourke, chief market strategist at BTIG in New York. “They already know they’re getting good valuations. You’re looking for secondary indicators to key decisions off.”

Of course, traders and shorter-term investors have always followed metrics like the 50- and 200-day moving averages-trend lines that track the market‘s movement over time intervals which are used to determine where it’s headed next.

A close above a moving average for several consecutive trading days indicates a breakout higher, while breaching a low often means the opposite.

Such levels certainly can be driven by news events, but often became strong psychological barriers that trigger buying and selling independent of the headlines.

O’Rourke says he is watching the CBOE Volatility Index (Market Data Express: VIX) for clues. With the VIX holding below 30, he thinks the market could have an upward bias but will need help from economic numbers.

The market has bounced off a more than 13 percent correction-level downturn, with buyers stepping in whenever the S&P gets near the 1040 which represents the 200-day moving average.

“From a macro basis, it’s going to be a situation where you’re stuck in this trading range, which is the technicals, unless something unforeseen happens,” says Alan B. Lancz, president of Alan B. Lancz and Associates in Toledo, Ohio. “In that sense, it’s going to take an awfully big piece of news to trump the technical levels right now.”

In such an environment, the investment strategy is pretty straightforward, says Lancz: Sell into rallies and buy the dips until the market shows signs of a breakout.

“Get more defensive. Look at companies that haven’t moved yet if you do have this trading-range type of market,” he says. “You can buy more cyclical companies that have taken a beating that can offer some opportunity for a bounce-back rally.”

The important observation for this rally is that it is coming in a counter cyclical nature, few have accepted that we are in a long term decline.  Certainly not this writer.

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Disclosure: no positions

- About the Author:   About World Market Media:WorldMarketMedia.com (The Global Online Investment Community) is a high traffic stock market, news data website providing cutting edge new media products and services to publicly traded companies worldwide. Our Editor’s Desk authors insightful real-time coverage on the economy, the capital markets and their listed companies. Article Source