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Guest Post: How To Trade Market Bottoms For SP500 And Gold
Submitted by Chris Vermeulen, of www.TheGoldAndOilGuy.com
The stock market topped in April which was expected from analyzing stocks and the indexes. Back in April I posted a few reports explaining how to read the charts to spot market tops. Today’s report is about identifying market bottoms.
It does not get much more exciting than what we have seen in the past 2 months with the market topping in April and the May 6th mini market crash. This Thursday we saw panic selling which pushed the market below the May 6th low washing the market of weak positions.
For those of you who have been following me closely this year I am sure you have noticed trading has been a little slower than normal. This is due to the fact that the market corrected at the beginning of the year and we went long Feb 5th and again on Feb 25th. Since then the market rallied for 2 months and never provided another low risk entry point. In April the market became choppy and toppy and we eventually took a short position to ride the market down. Now were we are looking at another possible reversal to the upside.
Only a few trades this year which I know frustrates some individuals but if you step back and look at my trading strategy you will learn that we only need to trade a few trades a year to make some solid returns. I don’t know about you but I would rather trade a few times a month and live life between trades… not trade all day every day getting bug eyed in front of the computer.
Ok enough of the boring stuff let’s get into the charts…
SP500 – Stock Market Index Trading ETFs & Futures
The pullback in the broad market was expected but the mini crash on May 6th really through a wrench into things for us technical analysts. We don’t really know the truth about what happened that day… was it just a simple error or was it a planned error for the US government to take a massive short position to move something in their favor quickly to generate MASSIVE gains? It leaves us technicians hanging wondering if that was a shift in trend from up (accumulation) to down (distribution)?
My thoughts are if the crash was truly an error then we will see months if not another year of higher prices… But if it was a planned sell off with banks moving to the sidelines then we are most likely headed into another bear market. Personally it does not matter what happens as big money will be made in either direction. Problem is if we do go into another bear market then the majority of individuals will lose capital as investor’s portfolios get smaller and smaller. That will lead to a lot of depressed people…
In short, I am neutral on the stock market for the intermediate and long term. Once we have a few more months of price action only then will I have a plan for longer term investments. But on the short term time frame the market is screaming at me with extreme sentiment levels lining up on the stock market and gold.
The daily chart of the SPY – SP500 Index shows several important points which help me time market bottoms. We have prices trading at a support zone. Buyers step back into the game here and should provide a decent bounce which started Friday Morning.
Next we have the panic selling spikes from an indicator I created. Generally the day after we see panic in the market like we did on Thursday we will see a big bounce and many times a large rally.
Down at the bottom you can see my custom market cycles which are both starting to bottom. During times like this the market has a natural tendency to move higher.
VIX – Market Volatility Daily Chart
The VIX has an old saying “When the VIX is high its time to buy, When the VIX is low, its time to go”. Simple analysis clearly shows the VIX trading high and at a resistance zone.
Put/Call Ratio – Daily Trading Chart
This chart measures the amount of put and call options traded each day. When it is trading over 1.00 then we know for every 1 call option traded (wanting the market to go up) there is 1 put option traded (wanting the market to go down). Over 1.00 is extreme and when that many people are bearish and using leverage to profit from a drop in price then in my opinion it means everyone has already sold and the selling pressure is about to end.
Actually if you go back in time and review SP500 and this ratio you will notice 2-3 days after this ratio reaches 1.00 or higher the market bounces/bottoms.
NYSE Advance/Decline Line for Equities – Daily Chart
This chart shows us how many stocks are advancing or declining on any given day. When extremes are reached look for a short term bounce or bottom 1-3 days following.
How to Identify Stock Market Bottoms with Simple Analysis:
In short, I feel the market is forming a bottom here. How big of a rally will we get? I don’t know because of the mixed signals from the May 6th EXTREME heavy volume selling session. As usual I focus on trading with the trend, trading the low risk setups and I manage my money/positions scaling in and out of those positions as I see fit.
If you would like to receive my Real-Time Trading Signals & Trading Education check out my website at www.FuturesTradingSignals.com
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Holy crap, Robo was right.... again. :)
If past could form any indication, this gold correction is still two weeks away from being over.
Huh. Options expiration gold smash never makes it past 3 days out before it's all back. Unless my memory is gone which it could be.
Weird. I'm seeing gold march it's ass right up 1300 street next week. Strange how this correction still has so much downside from where you are viewing it.
1:30 tomorrow the rocket takes off. enjoying the scenery now.....and taking advantage of the incredible buying opportunity for which i want to thank -- openly -- the man responsible, Jamie Dimon.
I thank you.
My kids thank you.
My grandchildren thank you.
we will not be among the serfs when this all falls apart. i know this is hardly what you intended, we were supposed to hand all our cash and investments over, and spend the rest of our lives paying taxes to support the multi-generational wealth enjoyed by your family....
so, thanks for at least letting us out.
""Klaxon horn sound"' dive.. dive..! euro going down!
Looking for a big bounce next week.
I think so as well.
That said, I am sitting on my hands, I refuse to trade in this casino.
Just to freakin' dangerous for a mouse to get out on the dance floor when the elephants have the floor.
$10.1 big bananas into SPY last week - you don't want to be in the neighborhood when that tide turns.
Whether it is leading or not, the aussie all ordinaries bounced off support before breaking clearly through last week.
Expecting a sort term bounce in general.
this is garbage. technical analysis is worthwhile only when used in context.
Sorry but I think that S&P chart looks like shit.
Could see a rally to 1100 but anyone that thinks 1050 is some kind of "support" is delusional.
I tend to agree simply because the rise from March of 2009 wasn't based upon "normal" buying patterns. How do you TA a market this is manipulated?
The best I can come up with is that the manipulators will try to disguise the manipulation as a "normal" market..............until they don't. How do you TA May 6th? How exactly do you read that days action? What is "support" based upon May 6th?
Exactly, CD. TA only works in small markets, where all participants are looking at the same charts. It becomes a type of self-fulfilling prophesy. In the general equity market or in FX, which are now manipulated beyond anything previously imagined, mid to long-term TA is utterly worthless. You might as well stop by a palmreader or Tarot queen. The information provided will be equally valuable.
everybody here talks their book.
You should appreciate the analysis, as it is good.
It is always hard to hear what you don't want to hear.
but................................
What do you think the FED uses?
P/E ratios??? Price to book?
Get real. they use a drop of so much and then jump in to keep the IRA holders from freaking out and to keep the "wealth effect" going. As a trader our most important job is to figure out what that level is , and................
when they want the average IRA owner to switch into bonds from equities. I think the signal was may 6 that they warned everybody out of equities and into bonds..... but of course I am short.
HA
Good luck everyone !!
Actually, CD, the rally was based on normal buying patterns after a massive 15 month sell-off. Believe what you want but you just witnessed a bear market rally. PM's had to put money to work. The PD's and ZIRP put money to work. Thus the BMR did what it was supposed to do--put the fear of God (whatever, use your own word) into anyone going short. That's the purpose and the psychology behind BMR's. It is a known fact for 80 years, and actually longer if you go back to markets in the 1600-1700's, full of depressions and bull markets. And full of bear market rallies. What you need to understand is that while you know I am a technician, I don't take this shit for granted. I was a bond/mortgage/options market maker for years on the street and at the time even though I was hedged or delta neutral, I paid big attention to fundamentals.
I flipped that way of trading when I started using cycles derived from a variety of sources, W.D. Gann, amongst others, and realized that the heartbeat of the market is much easier to measure in terms of cycles and other TA including Elliott Wave than anything fundamental. I also have returns of 400% since 1999--80% on the short side.
When I ran the largest fixed income newswire in the world back in the early 90's, we put out headlines like this:
10:42 BUNDESBANK BUYING DOLLARS
11:43 BUNDESBANK BUYING DOLLARS
over and over again with all the central banks like the BOJ, etc. There is nothing new here in market manipution...it just isn't put up on the wires like we did in 1992 at AP/DJ. And by the way--guess what happened with their efforts--squat in terms of their currency efforts. The market always won.
There is so much people don't understand about intervention (call it manipuation, if you must but it really isn't). The market sets the price in the long run. And this market is only different in one respect from previous precarious positions: This is the popping of the biggest debt bubble in Western civilization. It is a huge deleveraging that has only just begun.
Great post, HB, thanks for the insight!
I'm taking my cues from credit.
I don't like what I see there.
TA is nice as a supplement analytically, but not in a manipulated environment.
Check out Armstrong Economics
http://www.martinarmstrong.org/economic_projections.htm
See his article May 14. Interesting.
trading gold a pure oxmoran ,, buy the real . these punch drunk nickle flippers .. can not be satisfied with a 900 oz gain,,
they game the paper system call it gold ,, and usually end up as the 85% who zero sum the system ,, usually a minus ,,
call it what it is .. it is not gold lol
5
Hittin the sauce on a Sunday?
Why not? Its as good as any other day...
never on a monday ,, but the sunday is the day of rest lol
use the right hand ,, slowly .. now toss in the outhouse
Go get 'em dumpster and Hulk. Informed poetry and commentary are BIG +++s in my book.
Enemies of the two above posters are enemies of mine.
For what that's worth!
Oh, and as dumpster advises, buy physical gold.
Why do memorex when live is available? No doubt!
classic
Ill let you boys play for the next two weeks. Ill comfortably watch from the sidelines. WWWWAAAYYY to much risk in the news right now to try and capture a few points upside.GLTY Chartheads
the comments from T. Ferguson, C. Dissonance, et. al. are getting to my point that TA is only worthwhile when used in context.
the comments from T. Ferguson, C. Dissonance, et. al. are getting to my point that TA is only worthwhile when used in context.
Yes, worthwhile only in context or in hindsight.
These chartreaders are like the conmen who offer betting "advice" on autumn weekends.
Give half the callers Auburn. Give the other half Alabama. When Alabama covers, call the shills back and offer next weeks picks for $100. Wash, rinse and repeat. Anyone dumb enough to fall for it deserves to be separated from their money.
Anyone paying for advice from assholes such as Prechter et al deserves the same fate.
Regardless of my comments, there will be fools like the gold and oil guy who see 1050 as some magic number and in a pavlovian salivatory humping orgy buy the 500. We had a bit of this last Friday. When they're done, the market will simply proceed to do what it does best and separate fools from their money.
The next important intermediate level buying opp. will be below 900 for at least 10% upside, more likely 20% to 25%, or back up to the 1050 level max. Yes, 1050 will become resistance in the ongoing bear market.
Yep. You got that right. And I love the Pavlovian salivatory humping orgy visual. The mind goes all over the place on that one, especially mine--somewhere between the Humane Society and the GS prop desk.
There has been a brainwashing here at ZH that believes market manipulation actually works since we had such a wonderful BMR. Sorry folks, but you have entered another time, another dimension. The Fed can't hold up anything anymore for more than a few weeks. We'll get a good rally here and there, some for a few months as we wind our way down, but I'll say it again.
S&P 300 BITCHES....
HB, my cycle work has S&P 400 sometime in 2011. I use mathematics to get the cycles, though not Fourier analysis.
And the FED can't hold up anything anymore for more than a few weeks, why?
You can never run out of binary digits and the madman will continue to create digital money until one day the whole system goes down with him. But that's waaay further out than a few weeks.
Because they are small compared to the rest of the world in terms of capital selling pressures...think of the largest hedge funds, governments, and global money managers. They are the market. Not the Fed.
Picking bottoms is for monkeys.
http://www.youtube.com/watch?v=4URm5eIFLJ4&feature=related
But in truth, should I meet with gold or spices in great quantity, I shall remain till I collect as much as possible, and for this purpose I am proceeding solely in quest of them.
Christopher Columbus
Damn it chart man. It is much easier than this. Go back 10, 20 years, your choice. When the fed is printing the market rises. When they stop it falls. Dallas Fed M1. Superimpose it over the SP. Fed stopped printing when Ben's confirmation was held up in January (?) and stopped in April. When M1 gets turned on again you'll see another amazing run. We don't need any other charts, just the M1.
Nikki
Does the M3 ever hold a trump card over the M1 in your opinion? If so what is the lead/lag for a contracting M3 to take its toll? Or is it all in the power of the press?
On another topic "Time to buy when the VIX is high" will cost you dearly as the VIX hit its highs in October of '08 and the S&P hit its lows in March of '09. Enough useless rhymes.
Good info Gold and Oil guy. Just curious why you didn't talk about neither gold nor oil.
Because he is not only an idiot, he got a guest post on ZH. How the fuck that happened I will never understand. Hey Tyler, what the hell is up with the two moronic technician contributor posts today with first the Waver that wouldn't understand an Elliott Wave if his life depended on it and then this guy claiming to be a technician but questioning May 6th as relevant data? Big waste of space if you ask me.
You want my technical take? We will crash into July with a few upside weeks to make buy the dippers happy only to lose it the next week in just a few hours. Hey, you nailed it Tyler, HFT is going to make this bear look like nothing ever seen. Vol will be over 100% within a year and could peak at 200%. The highest reading ever is around 135. It will look like kindergarden.
Questioning May 6th...hmmmph.
He claims to be a technician but questions May 6th? That's not a technician talking--that's horseshit. And for all of you talking about market manipulation getting in the way of technical analysis, wrong assumption again. Market manipulations are fundamentals, just like CPI and cooked jobs reports.
You CANNOT claim to be a technician and question May 6th. It was real, the charts did what they did, many indices and ETF's have broken May 6th levels already.
Bounce, sure, it's a fabric softener and a reference to poor little dead kitty cats in bear markets. Especially big, bad, bear markets. Suck on that, Timmy and Ben. You are OUT of ammo.
I'm not buying the bull case- I see bounce to 1100 then look to short.
Watch Chernwaiski's "BROADENING TOP" video. Hedgefunds are out,
retail can't hold this market up, I see rallys sold still
watch> http://www.youtube.com/watch?v=PS-qvjkOlfU
The March 2009 lows won't hold.
Updated DOW daily and weekly charts:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
As said before, I buy equities only when noone wants them. Ideally when the very mention of the words 'stock market' lead to incendiary irrational fury from retail who have been roasted slowly again and again. We aren't there yet...
In the meantime, whats a man to do ? Speculate on how the above will continue to widen the gap between the haves and have nots in our society ? Construct a riot index based on which cities are likely to erupt first ? The average voter is so apathetic these days, that it will take longer for fomenting unrest to actually become reality. Nevertheless, I anticipate that in the UK at least, we'll see a repeat of the early Thatcher years, as the Tories do what they have to do to sort this mess out and get blamed by the population at large. Rioting is in the blood of the English, read A.A. Gill's 'The Angry Island' for confirmation.
With a country thats far more multiracial than the early 80's, it will get messy. Particularly in the North again. Your insurance premiums are only going one way from here...
Agree with Howard_Beale and the Turd. This sort of broad-based technical analysis with a built-in excuse for its lack of predictive power (May 6) is unhelpful. Maybe Tyler is suggesting an alternative source of information for pissed-off Goldman clients?
How does any of this technical analysis have any validity any more when we see a jack job -- you exposed yourself -- in the last ten minutes of trading last friday?
i'm curious here, honestly....does technical analysis have any meaning when you have a dishonest actor with literally billions at their fingertips in the marketplace pushing the market in one direction?
i'm reluctant now to place any value on TA...there are no actual bids, investors are leaving the marketplace. As one guy said once to me, "you know, there was a point after cars were intro'd that the stocks of buggy whip sector had retraced 100% and were a dynamite buy"....
i think we're at the place with the role the government with JPM is playing here.
Where can we get realtime major indices priced in gold dollars, SF, JY, EU etc etc - thanks. -x
It seems to me that the gold market started heading higher following the CFTC hearing on March 25th. As I look at the price today it is still holding up well, despite dramatic falls earlier in Europe and now on Wall Street. I am reading this as a change in attitude towards gold. If this is the case I think the long-term drivers behind precious metals will push them higher. This chart from WhichWayGold illustrates the point quite nicely.
http://www.whichwayhome.com/index.php/gold/why-buy-gold/gold-silver-plat...